519 F.2d 418 (9th Cir. 1975), 73-3163, Blankenship v. Hearst Corp.

Docket Nº:73-3163.
Citation:519 F.2d 418
Party Name:Harold D. BLANKENSHIP, an individual, Plaintiff-Appellant, v. The HEARST CORPORATION, a corporation, William H. Myers, an individual, Defendants-Appellees.
Case Date:June 26, 1975
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 418

519 F.2d 418 (9th Cir. 1975)

Harold D. BLANKENSHIP, an individual, Plaintiff-Appellant,


The HEARST CORPORATION, a corporation, William H. Myers, an

individual, Defendants-Appellees.

No. 73-3163.

United States Court of Appeals, Ninth Circuit

June 26, 1975

Page 419

[Copyrighted Material Omitted]

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Timothy H. Fine (argued), San Francisco, Cal., for plaintiff-appellant.

Marvin Gelfand (argued), Los Angeles, Cal., for defendants-appellees.


Before KILKENNY and TRASK, Circuit Judges, and RICH, [*] JudUnited States Court of Customs and Patent Appeals.

TRASK, Circuit Judge:

This is an appeal in a private antitrust action brought in the United States District Court for the Central District of California seeking injunctive relief and damages. The plaintiff and appellant is Harold D. Blankenship, an independent contractor for the purchase, distribution and sale of the Los Angeles Herald-Examiner newspaper. The defendants are the Hearst Corporation, publisher of the newspaper, and William H. Myers, Director of Circulation of the newspaper.

The first cause of action was brought and the jurisdiction of the court was invoked to recover damages and for injunctive relief under sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, because of alleged violations of section 1 of the Sherman Act, 15 U.S.C. § 1. It alleged a combination and conspiracy to fix the retail prices at which the newspaper was sold to home subscribers. The second cause of action alleged a violation of section 1 of the Sherman Act by an unlawful combination and conspiracy to confine the customers to whom the independent contractors sold the newspaper.

Simultaneously with the filing of the complaint, requests and counter requests for preliminary injunctive relief collateral to the principal case, were sought and disposed of. They are not now material to the predominant issues on appeal.

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Harold D. Blankenship prior to March 19, 1973, was a home-delivery dealer of Hearst's Los Angeles Herald-Examiner. He engaged in the business of distributing the newspaper to boy and girl newspaper carriers who in turn delivered the paper to home subscribers. He operated within a part of the Los Angeles area as the exclusive dealer for that geographic area. At the time Blankenship was carrying on his business Hearst also maintained an overlapping set of exclusive dealerships for the distribution of the newspaper by street sales those made from vending machines and retail stores. Hearst granted the street dealers certain advantages in order to maintain the dual distribution scheme: (1) Hearst sold newspapers to its street dealers at a price below what it sold them to home-delivery dealers; (2) Hearst permitted street dealers to return unsold papers for credit but did not allow home-delivery dealers to do the same; and (3) Hearst helped street dealers acquire vending machines but did not do so for home-delivery dealers.

In the fall of 1971 Blais home delivery operations. Hearst employees discouraged Blankenship from this move bis home delivery operations. Hearst employees discouraged Blankenship from this move by pointing out the practical difficulties he would have without the lower price and the right to credit for unsold papers. Blankenship did not expand his operation. From September 1, 1970, until May or June 1972, Blankenship distributed newspapers he purchased from Hearst to boys and girls under the age of 18. The carriers delivered the papers and collected from the subscribers. The carriers kept 20 percent of the gross receipts for themselves and paid the balance to Blankenship. When a subscriber failed to pay, the carrier lost his 20 percent share, and Blankenship lost his profit and the cost of papers purchased.

In May or June 1972 Blankenship modified this arrangement. He then sold the newspapers directly to the carriers who in turn sold them to the subscribers. In the event of non-payment by a subscriber Blankenship reimbursed the carrier for out-of-pocket costs.

Prior to that time, in the fall of 1971, Blankenship requested approval of a new weekly collection system to replace the existing monthly procedure. He suggested a system of prices that would be charged by the carriers to the subscribers as follows:

Daily and Sunday $ .85 per week Daily only $ .60 per week Sunday only $ .25 per week Robert McKinney, Hearst division manager, agreed to the weekly system but stated that the prices should be: Daily and Sunday § .70 per week Daily only $ .55 per week Sunday only $ .25 per week Blankenship told McKinney, "This is not the price I had in mind." McKinney replied, "Well, this is the only price that you can charge or that can be charged." He stated that he would not permit any subscriber to pay more than $36 per year or $3 per month. These prices were the advertised home-delivery prices for the paper. Blankenship did not convert to the weekly collection system or suggest to his carriers the increased prices.

At the end of August 1972 Blankenship and all other home-delivery and street-delivery dealers received the following letter:

"August 29, 1972

"Dear Dealer:

"It has come to my attention that a dealer has attempted to raise the retail price of the Herald-Examiner. Your attention is directed to all editions of the newspaper wherein the rates are clearly stipulated according to law.

"In order to protect the registration with the U.S. Patent Office and to maintain the newspaper's valuable good will, you must agree not to increase

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or decrease the price of the newspaper as stipulated.

"Very truly yours,

William H. Myers

Circulation Director"

The dealer mentioned in the letter was not Blankenship. This letter was not sent to the carriers. The intent of the letter according to one Hearst official was to be "a temporary inhibition of price changes until the basic wholesale price changes . . . were implemented." "We had in mind that the dealers would not implement price changes in a checkerboard or haphazard manner until the Price Commission approval had come through and the across-the-board wholesale increase would occur." On February 1, 1973, that general wholesale increase occurred.

At the end of December 1972 Blankenship increased his prices to his carriers and suggested retail increases that were in excess of the amounts suggested in the newspaper flag. Prior to this time another dealer had raised his prices above the flag prices, and Hearst had been enjoined from enforcing any price maintenance program. All the branch managers had been instructed to take no action in the event another dealer increased his prices.

On February 12 or 13, 1973, Blankenship's branch manager Blanchard met with circulation director Myers who informed Blanchard that he was thinking about terminating Blankenship. Blanchard informed Myers that Blankenship was a good dealer. On February 15, 1973, the Herald-Examiner gave Blankenship an award for being the most outstanding home-delivery dealer in his branch area for 1972. The next day Myers sent Blankenship notice that his dealership was terminated effective March 19, 1973. Neither Blanchard nor William Presley, Blanchard's superior, recommended this action. The company claims that it took the step because Blankenship was suffering declining subscriptions in his area.

Based on these facts Blankenship filed this suit in federal district court alleging that Hearst's dual distribution scheme violated section 1 of the Sherman Act, 15 U.S.C. § 1, and that Hearst had combined in a price-fixing conspiracy. Blankenship sought treble damages under the Clayton Act, 15 U.S.C. § 15, in addition to injunctive relief under both causes of action.

The trial of this case began September 18, 1973, before the district court sitting with a jury. Immediately prior to trial the district court granted defendants' motion for judgment on the pleadings as to Blankenship's allegation that Hearst's dual distribution scheme violated section 1 of the Sherman Act, 15 U.S.C. § 1. Following the close of the trial the district court granted defendants partial judgment on this cause of action.

With respect to plaintiff's price-fixing charge the court raised the issue whether plaintiff had capacity to sue for the period prior to mid-1972 on the theory that Blankenship and the carriers were under the then existing business relationship of a partnership and plaintiff could not prosecute the case without the carriers' approval. The district court granted judgment on the pleadings for defendants on the price-fixing cause of action for the period prior to mid-1972. The trial court also sua sponte dismissed plaintiff's price-fixing theory for the period after mid-1972 on the basis that Blankenship after this time became a wholesaler who sold his products to the retailers, the boy and girl carriers, and that he had no standing to complain of price-fixing activities directed at the retail price of the newspaper.

At the conclusion of plaintiff's case, which was by now limited to the issue whether Blankenship's dealership was illegally terminated as a reprisal for his price activities, the district court granted the defendants a directed verdict on the ground that Hearst's action simply constituted a permissible refusal to deal and

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arguably on...

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