JT Gibbons, Inc. v. Crawford Fitting Co., Inc.

• Citation: 565 F. Supp. 167
• Decision Date: 23 December 1981
• Docket Number: Civ. A. No. 79-1127.
• Parties: J.T. GIBBONS, INC. v. CRAWFORD FITTING COMPANY, INC., et al.
• Court: U.S. District Court — Eastern District of Louisiana

565 F. Supp. 167

J.T. GIBBONS, INC. v. CRAWFORD FITTING COMPANY, INC., et al.

Civ. A. No. 79-1127.

United States District Court, E.D. Louisiana.

December 23, 1981.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Joseph M. Alioto, Alioto & Alioto, San Francisco, Cal., for plaintiffs.

Ernest Mansour, Cleveland, Ohio, for defendant Fred A. Lennon.

Dando B. Cellini, McGlinchey, Stafford, Mintz & Cellini, New Orleans, La., for Crawford Fitting Co.

Thomas E. Balhoff, Baton Rouge, La., for Capital Valve & Fitting Co., Inc., and R.D. Jennings.

Charles E. Hamilton, New Orleans, La., for Thomas A. Read & Co., Inc.

PALMIERI, Senior District Judge.^*

PRELIMINARY STATEMENT

This antitrust action brought under sections 1 and 2 of the Sherman Act was tried to a jury from November 2, 1981 to November 19, 1981. Both parties moved for directed verdicts at the close of the entire case. Defendants' motions were granted, plaintiff's were denied. Only a counterclaim of the defendants for damages based on a general tort statute of Louisiana¹ was submitted to the jury on special interrogatories and resulted in no award of damages. At the time the directed verdicts were granted, this court made an oral disposition of the motions on the record and committed itself to the filing of a more elaborate statement of its views after the close of the case. This opinion represents the fulfillment of that commitment.

The plaintiff, J.T. Gibbons, Inc. (Gibbons) of New Orleans, is principally an exporting company dealing in a great many domestically manufactured goods it resells throughout the world. Richard Keeney, its president, had been a salesman for one of the defendants, Capital Valve and Fitting Company, Inc. (Capital) of Baton Rouge from 1973 until 1975. Capital is the Louisiana distributor of the products of Crawford Fitting Company (Crawford), another defendant, which is a manufacturer of valves and tube fittings, and which has its principal place of business in Solon, Ohio. Crawford's products are sold through a network of independent distributors located throughout the United States and in numerous foreign countries. It is owned by Fred A. Lennon, its present chairman of the board and former president, a defendant in this case. Its current president is Francis J. Callahan. Capital is owned and operated by Mr. Robert D. Jennings, its president, who was joined as a defendant in this lawsuit. Thomas A. Read and Company (Read), a Texas corporation, another defendant in the case, was the authorized distributor for Crawford products in the greater Houston, Texas area.

In 1975, Mr. Cecil Keeney, a New Orleans businessman, purchased the Gibbons company for his two sons, Richard Keeney and Michael Keeney who became president and executive vice-president, respectively, of the company. Shortly hereafter, Richard Keeney had Gibbons commence the purchase of Crawford valves and fittings from Capital. The Crawford products were then resold by Gibbons in the North Sea oil drilling area. In May 1978, Capital refused to continue its business with Gibbons. In June 1978, Gibbons claimed it was the victim of a boycott and sought to buy products directly from Crawford. While it did not succeed in this, Crawford provided an alternate source of supply from its distributor in Birmingham, Alabama, Franklin Valve and Fitting Company, Inc. (Franklin). Gibbons never availed itself of Franklin or the blanket discount it offered, but Gibbons was never at a loss to fill its orders for Crawford products, having succeeded in using a Crawford distributor, Potomac Valve and Fitting Company (Potomac), in the Washington, D.C. area for this purpose. Gibbons also made purchases of valves and fittings from Crawford competitors. There was overwhelming evidence that the industry was intensely competitive and that Crawford's share of it was relatively small. Because Crawford's products required technical skill for their proper use and were frequently the component parts of installations having serious accident potentials, service follow-up procedures, engineering support and territorial restrictions were part of the distribution system. Gibbons has charged that it was damaged by this system in various ways and that the maintenance of the system was a restraint of trade and the result of a conspiracy to restrain trade in which Crawford, Capital, Read, Mr. Lennon, Mr. Callahan and Mr. Jennings participated.² The various aspects of these charges will be dealt with separately.

THE CRAWFORD COMPANIES

Fred A. Lennon began the Crawford business in 1947, entering an industry which already had many well established competitors. Crawford did not begin to manufacture valves until 1959, and has gradually added products to its valve lines over the years. Today, it sells over four thousand different valve and fitting products.

Crawford has five, separately incorporated, manufacturing companies which manufacture different products: Crawford Fitting Company (Swagelok tube fittings); Whitey Company (shut off and ball valves); Nupro Company (fine metering, bellows and check valves); Cajon Company (weld pipe fittings and vacuum products); and Sno-Trik Company (very high pressure products). Crawford products are sold wholesale to its distributors by regional warehouses. The three domestic warehouses relevant to this litigation are Southern Swagelok, Eastern Swagelok and Central Swagelok. These warehouses are also separately incorporated. Southern Swagelok serves Crawford's distributors in the southern part of the United States, including Capital in Baton Rouge, Franklin in Birmingham, and Read in Houston. Eastern Swagelok serves Crawford's distributors in the northeastern part of the United States, including Potomac, located in Rockville, Maryland. Capital and Potomac are the two distributors from which Gibbons purchased Crawford's brands of valves and fittings.

Crawford also sells its products in Europe, through its warehouse in Switzerland, Microventil. Some of the distributors purchasing from Microventil, and involved in this case, are Glasgow Valve and Fitting, Aberdeen Valve and Fitting, and Stavanger Valve and Fitting.

At all times involved in this lawsuit, Fred A. Lennon has owned all or a controlling majority of the stock of Crawford Fitting Company and all of its affiliated manufacturing and warehousing companies. He has been chairman and a director of the board. Francis J. Callahan has been an officer and director of all manufacturing companies and warehouses. He is the minority shareholder of the only manufacturing company of which Mr. Lennon is not the sole shareholder. Mr. Callahan is married to Mr. Lennon's niece.

None of these manufacturing and warehousing companies own any of the shares of any other of these companies. Their product lines complement each other and are sold through the same distributors out of a common catalog. They do not compete with each other. Their product lines do not overlap and they are all controlled by Mr. Lennon.

For each of the product lines of the Crawford companies, there is a published suggested price list, a distributor discount schedule and a suggested customer discount schedule. The price lists and discount schedules suggested are set by Mr. Lennon and Mr. Callahan. The final decision concerning these matters is reserved for Mr. Lennon, who controls these companies.

Crawford warehouses acquire the Crawford products at cost plus a small percentage markup, of one-and-a-half (1½%) percent. These warehouses then sell Crawford products to distributors at a discount commensurate with the size of the distributor's order. A similar discount, or "blanket", system is used by distributors in selling their products to purchasers. Gibbons purchased from the distributors.

Crawford products are similarly sold throughout Europe, except that an additional markup of approximately ten (10%) percent is calculated for its European price list, to cover the cost of transportation and air freight packaging, a small Swiss duty, and other costs associated with the transatlantic passage of the product. Microventil pays for Crawford products in American dollars, but sells to distributors, keeps its accounts, and pays its employees in Swiss francs as it is located in Switzerland.

There is no evidence that Crawford has ever rebuked or disciplined a distributor for selling at the distributor's own price. The Crawford contract with its distributors contains a sixty-day termination clause, permitting either party to terminate the distributorship agreement on sixty days' notice.

CRAWFORD'S DISTRIBUTION SYSTEM

A closer look at Crawford's methods in selling and distributing its products can provide a better understanding of the discussion which follows. Crawford created a system of exclusive Crawford distributorships throughout the United States, and later abroad. Each distributor was assigned a specific territory. The defendants Capital and Read were such distributors. Each distributor was obliged to maintain local stocks of Crawford products, service the needs of the customers in its territory and make personal calls on them. Since the maintenance of the local stocks engendered a considerable expenditure beyond the financial means of the distributor, the distributor would be permitted to acquire the products on credit on an open account. Crawford would typically take a minority ownership in the distributorship until it could become established and handle its own financing. The minority ownership would then be transferred at cost to the distributor. The distributorship would thereupon become one hundred percent independently owned. The vast majority of Crawford's distributors got their stock in this way and the same pattern is still being followed today.

As Crawford expanded into new product lines it developed increasingly customer-oriented marketing techniques emphasizing both the reliability and the availability of its products. The successful...