Westinghouse Elec. Corp. v. CX Processing Laboratories, Inc.

• Decision Date: 28 August 1975
• Docket Number: Nos. 72-3080,72-3081,s. 72-3080
• Parties: 1975-2 Trade Cases 60,508, 18 UCC Rep.Serv. 625 WESTINGHOUSE ELECTRIC CORPORATION, a corporation, Plaintiff-Appellant, v. CX PROCESSING LABORATORIES, INC., a corporation, Defendant-Appellee. WESTINGHOUSE ELECTRIC CORPORATION, a corporation, Plaintiff-Appellee, v. CX PROCESSING LABORATORIES, INC., a corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 668

523 F.2d 668

1975-2 Trade Cases 60,508, 18 UCC Rep.Serv. 625

WESTINGHOUSE ELECTRIC CORPORATION, a corporation, Plaintiff-Appellant, v. CX PROCESSING LABORATORIES, INC., a corporation, Defendant-Appellee.

WESTINGHOUSE ELECTRIC CORPORATION, a corporation, Plaintiff-Appellee, v. CX PROCESSING LABORATORIES, INC., a corporation, Defendant-Appellant.

Nos. 72-3080, 72-3081.

United States Court of Appeals,

Ninth Circuit.

Aug. 28, 1975.

Coleman P. Hall (argued), Seattle, Wash., for Westinghouse Electric corp.

Betty B. Fletcher (argued), William L. Dwyer (argued), Seattle, Wash., for CX Processing Laboratories, Inc.

OPINION

Before CHOY and GOODWIN, Circuit Judges, and BURNS, ^* District Judge.

BURNS, District Judge.

This is a contract dispute between Westinghouse Electric Corporation, a Pennsylvania manufacturer of Photoflash cubes and bulbs (lamps), and CX Processing Laboratories, Inc., one of its Washington distributors. Jurisdiction is the result of diversity, pursuant to 28 U.S.C § 1332. CX's counterclaim also alleges that Westinghouse is guilty of antitrust violations prohibited by the Sherman Antitrust Act, 15 U.S.C. § 1 et seq. Jurisdiction is provided by 15 U.S.C. § 15.

FACTS:

Westinghouse is one of the three major manufacturers of photo-flash lamps in the United States. CX is a Seattle company engaged in the photo-finishing business. It is common for photo-finishers to also serve as distributors of photo-flash equipment, and CX had done so previously for Sylvania, another manufacturer. During the summer of 1968, Tom Ryan, a Westinghouse representative began soliciting Leonard Tall, CX's principal owner, in hopes of converting CX to Westinghouse photo-flash products. Tall eventually agreed to distribute Westinghouse lamps. On December 1, 1968, he signed a "Westinghouse Electric Corporation, Lamp Division, Photo-Flash Lamp Distributor Franchise" agreement (P.F.D. agreement). The parties continued their negotiations, however, because the incentives for distributors provided by Sylvania continued to be more attractive than those offered by Westinghouse. In late January of 1969, Ryan submitted a "Form S-430," an internal Westinghouse form used by sale representatives to request authorization to meet or beat incentive offers made by Westinghouse's competitors. After receiving authorization for a single order of approximately 23,000 cases of lamps, he informed Tall that Westinghouse would match Sylvania's offer up to this amount. On February 24, 1969, Sylvania circulated an incentive offer of one free case of photo-flash lamps with every six purchased. Ryan advised Tall on February 27 that Westinghouse would meet this offer, and CX began test marketing to determine what quantity it could resell.

On March 11, Leonard Tall prepared an order entitled "Master Purchase Order" (M.P.O.) for 90,000 cases of photo-flash lamps. The order included the words: "Shipment of any portion of this order constitutes acceptance of all terms and conditions herein." Ryan took this order to his district manager, Fred May. On March 12, Fred May telephoned Fred Wood, Westinghouse's zone manager in San Francisco, and read him the entire agreement. To meet CX's current customer demands, Wood instructed immediate shipment of 4,900 cases. He affirmed this instruction in writing March 14. He also forwarded a copy of the M.P.O. to Westinghouse's national sales manager in Bloomfield, New Jersey, for home office approval.

The parties disagree as to whether Tall was ever informed that such approval was necessary. Westinghouse contends that in shipping these lamps without home office approval, it was not operating under the M.P.O., but rather in accordance with the P.F.D. agreement and the previous authorization for 23,000 cases of lamps in Ryan's S-430 form. The first shipment arrived in Seattle on March 17. A portion was delivered directly to Bazaar Stores, one of CX's customers, and the remainder to CX itself. CX paid for both deliveries.

On March 18, Leonard Tall met with Fred Wood and other Westinghouse executives to discuss sales. Two days later, on March 20, Tall was informed that no further shipments would be made. Originally Westinghouse claimed that an inventory shortage was the reason for this decision. Later it relied on the fact that the copy of the M.P.O. sent to its home office had been temporarily misplaced and therefore not acted upon until March 20. CX contends that the reason for this refusal to continue delivery was a series of inquiries and complaints by other distributors regarding CX's special price arrangements with Westinghouse. Since CX had already contracted for resale of a large portion of the order in reliance upon the agreement, Tall threatened to sue if delivery was not completed.

In early April Westinghouse sent its manager of marketing administration, Don Brown, to Seattle. After consultation with other Westinghouse executives, it was agreed that the company would honor the terms of the M.P.O. up to 23,000 cases, the quantity earlier authorized in its S-430 form. Ultimately Westinghouse sold and shipped approximately 17,000 additional cases of photo-flash lamps to CX. Their value according to the prices established by the M.P.O. was $121,419.40. Westinghouse also offered to sell the balance of the 90,000 cases at its regular prices. CX declined this offer and purchased cover goods from another manufacturer, General Electric. It also refused to pay for the 17,000 cases already delivered.

Westinghouse brought suit to recover the unpaid amount. CX alleged as an affirmative defense that Westinghouse had breached its contract to sell and had not fulfilled its terms calling for drop shipments to CX's customers. The company counterclaimed against Westinghouse for damages resulting from the breach. It also charged that the breach and refusal to deal with CX were pursuant to a combination in restraint of trade, in violation of Sections 1 and 2 of the Sherman Act.

A jury verdict awarded Westinghouse the entire amount of $121,419.40 for the 17,000 cases of lamps. The verdict also awarded damages of $90,980.00 to CX for its breach of contract counterclaim. This amount was later reduced by consent to $88,035.00. Westinghouse received interest on only $33,384.40, the difference between the two judgments. The district court dismissed CX's antitrust claim for lack of evidence.

ISSUES:

CX appeals from the dismissal of its antitrust claim and from the court's refusal to permit the presentation of certain evidence in support of it.

Westinghouse cross-appeals, claiming error on five separate issues:

1) Admitting parol evidence as to the terms of shipment and payment;

2) Erroneous jury instructions by the district court, and its refusal to give various requested instructions;

3) Failure to withdraw from the exhibits given to the jury those relating to CX's antitrust claim, which had previously been dismissed;

4) Refusal to reduce the jury's verdict on CX's counterclaim for breach of contract by the amount of the freight charges;

5) Failure to grant interest to Westinghouse on the entire amount awarded it by the jury's verdict.

CX's Antitrust Claim

CX contends that its counterclaim alleged both a "vertical conspiracy" between Westinghouse and its distributors to set prices in restraint of trade, and a "horizontal conspiracy" between Westinghouse, Sylvania and General Electric, as manufacturers, for the same purpose. Westinghouse objected the day before trial that it had not been fairly placed on notice of this second allegation. The district court then ruled that this horizontal conspiracy was not properly before the court because it had not been included in CX's original counterclaim or otherwise presented early enough to be considered.

CX's description of the alleged combination and conspiracy is provided in Section 13 of its "Answers and Counter-Claims."

"Most of the photoflash lamps produced in the United States, upon information and belief approximately 90% Thereof, are manufactured by three large corporations, to wit plaintiff, GE and Sylvania. The said three large manufacturers have adopted and followed a system of price leadership and adherence, the purpose of which is to maintain stabilized flashbulb prices and to prevent serious price competition among the manufacturers. Plaintiff holds a substantial portion of the flashbulb industry and markets its flashbulbs in large part through distributors, i. e. businesses which purchase and take title to the commodities and resell them to retail photography stores, supermarkets, drug stores and other purchasers. Commencing some time prior to 1969, at a date presently unknown to defendant, continuing to the present time, plaintiff and certain of its distributors have been engaged in a combination and conspiracy in restraint of trade, and have conspired and attempted to monopolize a field of interstate commerce i. e., the business of marketing flashbulbs throughout the United States."

Although this paragraph provides an historical description of Westinghouse, Sylvania, and General Electric that would permit an action to be brought against them for antitrust violations, the charging portion of this section refers only to Westinghouse and its distributors. Rule 8 of the Federal Rules of Civil Procedure requires that:

"A pleading which sets forth a claim for relief . . . shall contain . . . (2) a short and plain statement of the claim showing that the pleader is entitled to relief . . . ."

CX's counterclaim does not satisfy this requirement.

Nor did CX press this horizontal conspiracy claim until shortly before trial. There is nothing of significance in the interrogatories of either party to indicate that this issue was originally included as part of the case. CX's attorney admitted that no mention of either Sylvania or General Electric had been made in response to the court's inquiry at a pre-trial conference held approximately two weeks before the...