Hanson v. Shell Oil Co.

• Citation: 541 F.2d 1352
• Decision Date: 03 September 1976
• Docket Number: No. 74-1034,74-1034
• Parties: 1976-2 Trade Cases 61,052 C. O. HANSON, Plaintiff-Appellant, v. SHELL OIL COMPANY, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1352

541 F.2d 1352

1976-2 Trade Cases 61,052

C. O. HANSON, Plaintiff-Appellant, v. SHELL OIL COMPANY, Defendant-Appellee.

No. 74-1034.

United States Court of Appeals, Ninth Circuit.

Sept. 3, 1976.

John H. Boone (argued), San Francisco, Cal., for plaintiff-appellant.

William Simon (argued), of Howrey, Simon, Baker & Murchison, Washington, D. C., for defendant-appellee.

Before DUNIWAY and WRIGHT, Circuit Judges, and LUCAS, ^* District Judge.

DUNIWAY, Circuit Judge:

In this action appellant Hanson charged appellee Shell Oil Company and defendants Standard Oil Company of California and Gulf Oil Company with violations of § 7 of the Clayton Act, a vertical restraint of trade and horizontal restraint of trade, both under § 1 of the Sherman Act, and attempt and conspiracy to monopolize under § 2 of the Sherman Act. The trial court granted summary judgment to all defendants based on all acts occurring before December 23, 1964, and to Gulf on the § 7 Clayton Act charge. At trial, directed verdicts were entered for all defendants on all remaining claims except for the horizontal restraint charge under § 1 and the conspiracy charges under § 2 of the Sherman Act against Shell and Standard. The jury returned a verdict on those two charges for Hanson and awarded damages of $363,181.31, which when trebled would exceed $1 million. Defendants Shell and Standard moved for judgment notwithstanding the verdict or, in the alternative, a new trial. The court denied the motions for judgment n.o.v., but granted a new trial on the two issues that had been submitted to the first jury. At the new trial, against Shell alone, the second jury found for the defendants. Hanson now appeals, asserting error in (1) the granting of the motion for a new trial, and (2) granting the directed verdict for Shell on the § 1 vertical restraint claim and the § 2 attempt to monopolize claim. He also attacks the court's instruction to the second jury concerning acts occurring before December 23, 1964, and the rejection of certain evidence. Shell is the only appellee, Hanson's claims against Standard having been settled. We affirm. I. Statement of the Facts.

Hanson moved to Tucson, Arizona, in 1952, having assets of less than $7,000. He invested this money in his first service station under the name of "Hanson's Direct Service." Over the following ten years he expanded his business to include seventeen service stations along with a distributorship for El Paso Natural Gas products which he acquired in 1958. Throughout the entire period from 1952 to 1964, Hanson's business lost money in all but three years, and in those three years he failed to make enough to equal the $8,000 that he thought was a reasonable value for his managerial services. Thus, Hanson's expansion was financed entirely through credit, much of which was unwilling. Hanson admitted at the first trial that he used money from gasoline sales to acquire new stations rather than to pay his gasoline bills to his suppliers. Thus, by 1964, Hanson had turned his just under $7,000 into seventeen old service stations, one natural gas distributorship, and hundreds of thousands of dollars of debt.

Hanson's business was continually short of cash. By the end of 1964, he owed substantial amounts to over thirty creditors, and he had exhausted his credit. Hanson could buy gasoline only on a cash and carry basis. This, the relatively shoddy condition of his stations, and his difficulty in keeping station managers, combined to keep Hanson's monthly gasoline sales average around 10,000 gallons per station, while other independent dealers in Tucson were averaging four to five times that amount. Testimony at the first trial indicated that with such a low sales volume a dealer could not continue to operate indefinitely.

Because of these hopeless conditions, beginning in 1962, Hanson attempted to sell his entire business, but, not surprisingly, he was unable to find any interested buyers. In July of 1966, Hanson finally closed out his business. Like many another loser in the competitive endeavor, he decided to try the antitrust laws as a means of shifting his losses to someone else. He brought the present action against Shell, Standard, and Gulf on December 23, 1968, two and one-half years later.

Hanson claims that he was the victim of an endless series of retail gasoline price wars which plagued the Tucson market from 1958 to well after Hanson shut down his business in 1966. He claims that the cause of these price wars was the policy of Shell and Standard Oil, by price gouging, to run private brand and independent dealers out of the market. He points specifically to a change in Shell's pricing policy adopted in 1961 whereby Shell began a program of more vigorous price competition designed to regain the market share in the Western Region which Shell had lost in the previous six years. Hanson claims that in furtherance of this plan to seize market strength from the small private brand and independent dealers, Shell threatened and coerced its retail dealers to conform to Shell's suggested predatory prices, and also enlisted Standard's cooperation so that their efforts could be directed solely at the independents rather than at each other. The complaint alleged that because of the vertical restraints placed on the Shell dealers and the horizontal arrangement with Standard, Shell violated §§ 1 and 2 of the Sherman Act and thereby caused

Hanson to lose his business. II. The Directed Verdict on the

§ 1 Vertical Restraint Claim was Proper.

Hanson claims that Shell violated § 1 of the Sherman Act by fixing the retail price of gasoline sold by franchised Shell dealers. This vertical price fixing was supposedly accomplished through the use of company-owned stations which could put competitive pressure on franchised dealers, through the use or non-use of "dealer assistance," and through threats of refusals to deal such as not renewing dealer leases. After hearing all of the evidence, the trial court directed a verdict for Shell on this claim.

In the absence of fair-trade statutes, vertical resale price maintenance agreements are per se violations of § 1. Dr. Miles Medical Co. v. John D. Park & Sons Co. 1911, 220 U.S. 373, 399-400, 31 S.Ct. 376, 55 L.Ed. 502. This is true even though the agreement be only an implied one. F.T.C. v. Beech-Nut Packing Co., 1922, 257 U.S. 441, 453, 42 S.Ct. 150, 66 L.Ed. 307. If the agreement between the supplier and his buyer is reached because of coercive conduct toward noncomplying buyers, such as refusals to deal, a violation is also made out. Simpson v. Union Oil Co., 1964, 377 U.S. 13, 17, 84 S.Ct. 1051, 12 L.Ed.2d 98. The refusal to deal which gave rise to the vertical agreement in Simpson was Union Oil's failure to renew a dealer's lease because of his lack of compliance with the company's suggested resale prices. Thus, if the evidence presented at the first trial, taken in the light most favorable to Hanson, could support a finding that there was a coerced agreement between Shell and its retail dealers, the directed verdict must be reversed. Cornwell Quality Tools v. C.T.S. Co., 9 Cir., 1971, 446 F.2d 825, 830.

Hanson points to three different items of evidence which he claims to be sufficient to require that the § 1 vertical restraint claim be submitted to the jury. First, there was evidence that during the early 1960's Shell maintained one or two company-owned stations in Tucson which would set the retail price at the point the company recommended and thus put pressure on the other Shell dealers to comply. There are a number of reasons why this does not support Hanson's case. Hanson claims that Shell's war against the independents was waged in the Western Region encompassing five states, so that the fact that two company stations were maintained in Tucson, Arizona, is hardly evidence of coercion of Shell dealers throughout the relevant market. Moreover, even if the relevant market were limited to Tucson, two company-owned stations out of the multitude of Shell brand stations that existed in Tucson's eight trade areas would not be evidence of pressure being put on the franchise dealers. Hanson's own witness, a Mr. Wolken, the largest Shell brand franchisee in Tucson, testified that to his knowledge there were no company-owned Shell stations in Tucson. Finally, even if such pressure did flow from maintaining company-owned stations, there is no legal or economic reason for finding the use of such market pressures to be violative of § 1.

Hanson next points to Shell's use of "dealer assistance," a pricing system whereby Shell lowered its "tank wagon price" (wholesale dealer price) to dealers whenever it recommended that the dealers reduce their retail prices. ¹ Hanson contends that by reducing the tank wagon price whenever it recommended a lower retail price, Shell put pressure on the individual dealer to follow the recommendation, because every other Shell station would be priced below him if he did not. This argument has no merit. The uncontroverted evidence shows that dealer assistance was provided by Shell in a given area to individual dealers who asked for it. Dealers asked when they felt forced to lower their retail prices in order to meet local competition but felt financially unable to absorb the entire price reduction out of their margin. Thus, they asked Shell to give them dealer assistance so that they could meet competition without extreme financial sacrifice. The program was not initiated by Shell to force dealers to fix prices, but was initiated by dealers to enable them to stay competitive.

If Shell conditioned "dealer assistance" on a dealer's actually reducing his retail price, a more serious look at possible § 1 violations would be warranted. See Lehrman v. Gulf Oil Corp., 5 Cir., 1972, 464 F.2d 26. However, the testimony of Hanson's witness, Mr. Wolken, was that the changes in tank wagon price made by Shell were made for every dealer on request,...