Oreck Corp. v. Whirlpool Corp.

• Decision Date: 01 May 1978
• Docket Number: No. 1173,D,1173
• Citation: 579 F.2d 126
• Parties: 1978-1 Trade Cases 62,026 ORECK CORPORATION, Plaintiff-Appellee, v. WHIRLPOOL CORPORATION and Sears, Roebuck & Co., Defendants-Appellants. ocket 76-7631.
• Court: U.S. Court of Appeals — Second Circuit

Page 126

579 F.2d 126

1978-1 Trade Cases 62,026

ORECK CORPORATION, Plaintiff-Appellee, v. WHIRLPOOL CORPORATION and Sears, Roebuck & Co., Defendants-Appellants.

No. 1173, Docket 76-7631.

United States Court of Appeals, Second Circuit.

Submitted Feb. 16, 1978.

Decided May 1, 1978.

Law Firm of Malcolm A. Hoffmann, New York City, Malcolm A. Hoffmann, Edward A. Woolley, Robert W. Biggar, Jr., Robert C. Agee, Bernard Zucker, and Craig Schiller, New York City, on brief on rehearing en banc, for plaintiff-appellee.

Alvin K. Hellerstein, Robert P. Stein, and Stroock & Stroock & Lavan, New York City, Burton Y. Weitzenfeld, Michael R. Turoff, Stanley M. Lipnick, Patrick F. Geary, Arnstein, Gluck, Weitzenfeld & Minow, Chicago, Ill., on joint brief on rehearing en banc, for defendant-appellant, Whirlpool Corporation.

Charles A. Tausche, Chicago, Ill., and Joseph J. Skinner, New York City, on joint brief on rehearing en banc, for defendant-appellant, Sears, Roebuck & Co.

Before ANDERSON, FEINBERG, MANSFIELD, MULLIGAN, TIMBERS, GURFEIN, VAN GRAAFEILAND and MESKILL, Circuit Judges. ^*

ON REHEARING EN BANC

ROBERT P. ANDERSON, Circuit Judge:

The appellants, Whirlpool Corporation (Whirlpool) and Sears, Roebuck & Co. (Sears), appealed from a judgment entered on July 13, 1976, on a jury verdict against them and in favor of Oreck Corporation (Oreck), on two counts of a seven count complaint charging violations of § 1 of the Sherman Act, 15 U.S.C. § 1. On appeal, a divided panel of this court reversed and remanded the case for a new trial. Oreck Corp. v. Whirlpool Corp., 563 F.2d 54 (2d Cir. 1977). Appellee's petition for a rehearing En banc was granted on December 15, 1977. The hearing of the appeal En banc was submitted on briefs by all of the parties and without further oral argument. On reconsideration we concur in the judgment of the panel majority, reverse the judgment of the district court, and remand the case for a new trial.

The material facts of this dispute have been set forth in the opinion of the panel majority and will be reviewed here only briefly. Whirlpool has been in the vacuum cleaner business since 1957 when it acquired the Birtman Electric Co. and began manufacturing vacuum cleaners for Sears, to be sold under the "Kenmore" label. Whirlpool also sought to sell vacuum cleaners under its own tradename. In August, 1963, Whirlpool entered into an agreement with Oreck, by which the latter was appointed the exclusive distributor of vacuum cleaners under the name of "Whirlpool" for an initial term of five years, with automatic extensions for one-year periods thereafter, absent six months prior notice of termination of the agreement by either party. Whirlpool gave Oreck formal notice of termination of the agreement on June 27, 1968; but after further negotiations, Whirlpool and Oreck entered into a substituted contract, dated August 1, 1968, which extended Oreck's distributorship through December 31, 1971; it did not, however, contain any provision for an extension. On May 14, 1971, Whirlpool informed Oreck that it intended to allow the sales agreement to expire according to its terms and, on December 31, 1971, Oreck's exclusive distributorship of "Whirlpool" products ended. The instant action followed in September of 1972.

This lawsuit is based on Oreck's claim that it was not afforded the opportunity for an additional period of time as Whirlpool's exclusive distributor at the behest and insistence of Sears, a much larger purchaser of Whirlpool products. Accordingly, Oreck's complaint charged both Whirlpool and Sears with engaging in a contract, combination, or conspiracy in unreasonable restraint of trade to exclude Oreck from the vacuum cleaner market in the United States and Canada. ¹

At trial, Oreck's case for liability rested principally upon the testimony of Marshall Oreck, its General Manager, and of David Oreck, its President. It was their contention that the reason for Whirlpool's failure to renew the contract was Sears' desire to end competition from Oreck. By way of defense and explanation of its action, Whirlpool presented the testimony of its officers who dealt with Oreck to show that, among other reasons, the contract was not renewed after December, 1971, because of Oreck's failure to follow the original marketing strategy contemplated by Whirlpool. ²

Oreck presented no evidence that the net economic effect of the non-renewal of its contract was to restrain trade unreasonably in the vacuum cleaner industry in the United States and/or Canada. ³ Nor did it show that alternative sources of supply were unavailable and that it was, therefore, excluded from competition in the vacuum cleaner business. David Oreck admitted that Oreck had been able to obtain vacuum cleaners from another manufacturer and was, at the time of trial, the world's largest supplier of "top fill upright vacuum cleaners."

Despite the lack of mention or reference to any evidence of an anticompetitive purpose or effect in connection with the alleged Whirlpool/Sears agreement, the trial court instructed the jury that,

"The violations alleged by plaintiff are, if you credit them, unreasonable restraints of trade . . . If you find there was such an agreement (between Whirlpool and Sears "to exclude Oreck from a market in vacuum cleaners Or Whirlpool vacuum cleaners anywhere "), then you should go on to consider damages." (Emphasis added.)

An almost identical charge was given with respect to count two, dealing with Oreck's alleged exclusion from the Canadian market. ⁴ Under such instructions, the jury could simply have found an agreement by Sears and Whirlpool to exclude Oreck from the sale of Whirlpool vacuum cleaners and, On that basis, have found them guilty (as it in fact did) of a Per se violation of § 1 of the Sherman Act. Yet the very same conduct can constitute the granting of a perfectly legal exclusive distributorship or one, at least, whose legality must be judged under the rule of reason standard. Packard Motor Car Co. v. Webster Motor Car Co., 100 U.S.App.D.C. 161, 243 F.2d 418, Cert. denied, 355 U.S. 822, 78 S.Ct. 29, 2 L.Ed.2d 38 (1957); see also, United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), Overruled on other grounds, Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977); Quality Mercury, Inc. v. Ford Motor Co., 542 F.2d 466 (8th Cir. 1976), Cert. denied sub nom. Prestige Lincoln-Mercury Inc. v. Quality Mercury, Inc., 433 U.S. 914, 97 S.Ct. 2986, 53 L.Ed.2d 1100 (1977); Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969), Cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970); Bay City-Abrahams Bros., Inc. v. Estee Lauder, Inc., 375 F.Supp. 1206 (S.D.N.Y.1974). On the instant reconsideration En banc, the issue is whether the Per se standard, under which the trial judge charged the jury, was appropriate in light of the nature of the alleged Whirlpool/Sears agreement.

Oreck's argument that the district court was correct in instructing the jury to apply the Per se standard in this case, rests principally on two assertions: first, that Whirlpool's decision not to renew Oreck's distributorship was motivated by a desire to eliminate the price competition which Oreck was offering to Sears; and second, that this effort by Sears and Whirlpool to restrain competition constituted a group boycott expressly forbidden by the holdings of the United States Supreme Court in United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966); and Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959).

With regard to the first of these points, it is undisputed that, at all times relevant, Sears was selling its "Kenmore" vacuum cleaners at prices Below those charged by Oreck for comparable "Whirlpool" models. The complaint did not allege, the evidence at the trial did not show, and counsel in summation did not argue, that Whirlpool was attempting to maintain high resale prices for its products by conspiring with its distributors or that its actions toward Oreck were an effort to chastise a dealer for refusing to cooperate in a scheme to fix or maintain prices. Cf. United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960). The contracts entered into by Oreck and Whirlpool in 1963 and 1968 clearly stated that Oreck had the sole right to determine its selling prices.

Oreck concedes that there was no Sears/Whirlpool agreement to fix prices, but argues that the elimination of its distributorship amounted to tampering with the price structure for vacuum cleaners, equally a Per se violation. ⁵ See, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 221, 60 S.Ct. 811, 84 L.Ed.2d 1129 (1940). In its brief on rehearing En banc, Oreck refers to a so-called "edge effect," that is, that by continuing to lower its prices and thereby come closer to those of Sears, Oreck's price operated as a ceiling against any increases by Sears. Cf. United States v. Penn-Olin Chemical Company, 378 U.S. 158 at 173-74, 84 S.Ct. 1710, 12 L.Ed.2d 775 (1964); Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division (II), 75 Yale L.J. 373, 405-410 (1966). This claim is unavailing in the present posture of this case. Because of the trial judge's incorrect instructions to the jury, it cannot be said that the issue of whether Oreck's distributorship was allowed to lapse in order to protect Sears from price competition was fairly submitted to the jury or decided by its verdict. Rather, because the trial judge failed to instruct the jury that it must find that the purpose or the effect of these agreements was to enable Sears to raise or to maintain its prices for "Kenmore" vacuum cleaners, the jury's verdict that Sears and Whirlpool violated § 1 of the Sherman Act is of no effect.

Oreck alleged that its...