Westman Com'n Co. v. Hobart Corp.

• Decision Date: 28 May 1982
• Docket Number: Civ. A. No. 76-K-918.
• Citation: 541 F. Supp. 307
• Parties: WESTMAN COMMISSION COMPANY, Plaintiff, v. HOBART CORPORATION, Defendant.
• Court: U.S. District Court — District of Colorado

541 F. Supp. 307

WESTMAN COMMISSION COMPANY, Plaintiff, v. HOBART CORPORATION, Defendant.

Civ. A. No. 76-K-918.

United States District Court, D. Colorado.

May 28, 1982.

COPYRIGHT MATERIAL OMITTED

Kenneth L. Starr, Ann Livedalen, Holmes & Starr, Michael J. Abramovitz, Drexler, Wald & Abramovitz, Denver, Colo., for plaintiff.

James E. Hautzinger, Robert E. Youle, Sherman & Howard, Denver, Colo., Thomas J. Collin, Thompson, Hine & Flory, Cleveland, Ohio, for defendant.

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER.

KANE, District Judge.

In this antitrust case the plaintiff, Westman Commission Company, alleges that the defendant, Hobart Corporation, combined or conspired with a competitor of the plaintiff, Nobel, Incorporated to restrain trade in violation of section 1 of the Sherman Act, 15 U.S.C. sec. 1. Section 4 of the Clayton Act, 15 U.S.C. sec. 15, authorizes this private action and provides this court with subject-matter jurisdiction.

Pursuant to the pre-trial order, trial of this case was bifurcated. After the first trial, which was held in 1978 and was limited to the issue of the defendant's liability, I found that the defendant had violated section 1 of the Sherman Act, intending to eliminate or restrict the plaintiff's competition with Nobel. Westman Commission Co. v. Hobart Corp., 461 F.Supp. 627 (D.Colo. 1978). After extensive discovery and other pre-trial proceedings, I held the second trial on the issue of the plaintiff's damages. Closing briefs have been filed and the matter is now ripe for decision.

I. BACKGROUND

Without repeating my previous opinion in this case, I will summarize it. Hobart is a manufacturer of kitchen equipment for use in food service establishments. Its products include scales, refrigerators and freezers, cooking and reheating equipment, food preparation machines, dishwashing machines, disposers, and waste equipment systems. Id. at 628. Westman was in the wholesale grocery business from 1952 until 1973. In 1973 it purchased Wilscam Enterprises in order to expand the scope of its business to include the supplying of furnishings and kitchen equipment to its customers. By doing so it became a "one-stop shopping" center. Id. Nobel is also a "one-stop shopping" center for restaurant equipment and supplies. Id. at 629. Although Westman's and Nobel's trade areas are not coextensive, they are both centered in Denver, and they overlap to a large extent.

"One-stop shopping" has substantial benefits for a customer:

There is a recognized distinct market wherein a purveyor can supply a customer in the institutional food service or restaurant business with all requisite equipment and supplies. Commonly referred to as "one-stop shopping" or "full-line distribution," customers obtain convenience, cost savings and better service from a "one-stop shopping" distributor than from houses specializing in selected products.

Id. at 628. Of course, "one-stop shopping" also increases the supplier's sales to that customer. For a supplier that seeks to provide "one-stop shopping," a Hobart dealership is virtually essential, both because of that lack of adequate substitutes for Hobart equipment and because Hobart dealers obtain factory rebates of up to eight per cent of their purchases. Id. at 629.

There was considerable testimony at both trials on Westman's ability to "bootleg" Hobart equipment, that is, to buy it from a Hobart dealer and then resell it to the customer. I concluded at the first trial that bootlegging was usually not feasible.

There is a general concensus, however, that there was no way that Westman could bootleg Hobart from another Hobart dealer and still be competitive. The president of Westman testified, "Nobel is our primary competitor; and if we can't buy at the same price as Nobel, there's no way we can compete with them." The inability to get eight per cent rebate affected the amount that an equipment dealer could bid. Furthermore, if Westman was to buy from an existing Hobart dealer, it had to pay that dealer an upcharge for supplying it with the equipment. Under these circumstances and in a market as competitive as the equipment supply business, McKinley's suggestion that Westman bootleg Hobart's products was totally unrealistic.

Id. at 634. As a bootlegger Westman would have also faced greater uncertainties in its supply of Hobart equipment. If, for example, it made a major contract bid assuming that it could get Hobart equipment at a certain price, it faced the risk that its profit margin could be extinguished because of higher prices from the dealer, or worse, that the dealer would refuse to supply the Hobart equipment that Westman had specified in the bid. Also, Westman would have placed itself in a precarious position if it had represented to its customers that it was in essence a Hobart dealer, but then could not obtain needed factory servicing for Hobart equipment that it had sold.

Summarizing the facts at the first trial, I concluded:

Distilled to its essence the trial showed clearly that Westman was, in all respects, qualified to be a Hobart dealer; that Nobel was, and is, in a nonpareil marketing position as a "one-stop shopping" facility to the Denver region and that a Hobart dealership is essential to the successful operation of a "one-stop shopping" concern in the relevant market area. With equal or greater clarity the evidence showed that Nobel was, and is, Hobart's biggest customer in the Denver region and that McKinley, a new regional manager, did not want to do anything which in any way would jeopardize his relationship with his largest account.... That Nobel would not want the competition is understandable. That Hobart would not want to lose any of Nobel's business is obvious. That, because of Westman's capacity the two would conspire to keep Westman from becoming a successful "one-stop shopping" concern by denying it a Hobart dealership combines a unity of purpose with a common design and understanding which is illegal. The evidence fully supports the conclusion that Hobart engaged in a conspiracy in restraint of trade to the detriment of Westman and is therefore liable to Westman for damages.

Id. at 635-36. My final conclusion of law outlined what I believed to be a proper method of calculating damages:

The injury resulting from the act done in furtherance of the conspiracy was the loss of profits to Westman: (a) from direct sales of Hobart kitchen equipment which it was unable to make and (b) from sales of kitchen equipment and supplies lost because it could not make an underlying sale of Hobart kitchen equipment.

Id. at 638.

At the first trial, both parties' attorneys demonstrated an excellent quality of advocacy, which facilitated the efficient determination of issues. See id. at 627-28. Unfortunately, the same was not thereafter true.¹ The advocacy by attorneys for both sides after the first trial considerably exceeded zealous representation of clients' interests. The lawyering was marked by unnecessary obstruction and obfuscation. Counsel could have stipulated to a table of base data containing as many categories as necessary to preserve their different legal positions. Such a table would have then obviated many of the discovery battles that Magistrate Sickler had to endure in this case, and it would have allowed all counsel to devote more energy toward effective advocacy of their respective legal positions. It would have also allowed me to calculate the damages that I now award to the plaintiff with greater ease and precision. Countless discovery battles often made this case resemble an endurance contest more than a trial. Many of these involved minor or indisputable facts. All counsel could have engaged in more-effective advocacy had they focused their energies on the major issues of the case. At this juncture it is impossible for me to assess the blame for this sorry conduct, so I will defer resolution of that issue to the hearing on attorney fees, where I am sure that each party will seek to blame the other. Suffice it to say at this juncture that current criticism of the abuses of discovery and excessive costs of litigation is amply supported by the illustration of this case.

II. CALCULATION OF WESTMAN'S DAMAGES

A. Plaintiff's Theory

At the damages trial Westman offered a detailed study of its lost profits that was undertaken by Marvin L. Stone, a certified public accountant. In this study Stone first determined that Westman's competitive share of the Westman-Nobel market in Westman's trade area should be 33.13%. He arrived at this figure by totaling Westman's and Nobel's purchases from common suppliers during 1977-79 for items that were to be sold in Westman's trade area. Next he determined Nobel's sales of Hobart and related equipment. These sales were in three categories: sales of Hobart equipment and sales of related non-Hobart equipment on contracts on which Nobel was the successful bidder, and noncontract sales of Hobart equipment. Assuming that Westman was completely barred from these types of sales, and assuming that Westman would have sold its competitive share of these items but for Hobart's illegal practices, Stone estimated what Westman's sales of Hobart and related equipment would have been if it had been a Hobart dealer. For this calculation Stone used the time period of June 26, 1974 through December 31, 1979.² Stone then applied Westman's gross profit percentage and variable cost percentage on equipment sales to determine Westman's lost profits from equipment sales, arriving at a figure of $296,166.³

Stone then estimated Westman's lost "follow-on" sales. Follow-on sales are the sales of supplies and additional equipment to customers who have already bought equipment from Westman on contract. Analyzing historical follow-on sales from contract sales and projecting the trends, Stone concluded that each dollar of contract sales led to 7.07 dollars (present value) of follow-on sales. He then applied this figure...