624 F.2d 1342 (5th Cir. 1980), 78-1159, Associated Radio Service Co. v. Page Airways, Inc.

Docket Nº:78-1159.
Citation:624 F.2d 1342
Party Name:ASSOCIATED RADIO SERVICE COMPANY, Plaintiff-Appellee, Associated Radio Company, Plaintiff-Appellant, v. PAGE AIRWAYS, INC., et al., Defendants-Appellants, Appellees.
Case Date:August 29, 1980
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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624 F.2d 1342 (5th Cir. 1980)

ASSOCIATED RADIO SERVICE COMPANY, Plaintiff-Appellee,

Associated Radio Company, Plaintiff-Appellant,

v.

PAGE AIRWAYS, INC., et al., Defendants-Appellants, Appellees.

No. 78-1159.

United States Court of Appeals, Fifth Circuit

August 29, 1980

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[Copyrighted Material Omitted]

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Donald F. Turner, Washington, D. C., for defendants-appellants, appellees.

Wilmer, Cutler & Pickering, Ronald J. Greene, Arnold M. Lerman, Washington, D. C., Akin, Gump, Hauer & Feld, John L. Hauer, Woodrow M. Bonesio, Robert E. Goodfriend, Dallas, Tex., for Page Airways & Page Gulfstream, Inc.

Steinberg, Luerssen & Vogelson, Jay M. Vogelson, Dallas, Tex., for Douglas Juston.

Jackson, Walker, Winstead, Cantwell & Miller, Jack Pew, Jr., D. L. Case, Dallas, Tex., for Edwin C. Hamilton & Ross C. Chapin.

Matthews & Thorp, Robert F. Henderson, Joe W. Matthews, Dallas, Tex., John N. McCamish, Jr., Charles J. Fitzpatrick, San Antonio, Tex., for Associated Radio Service Co. (plaintiff-appellee) and Associated Radio Co. (plaintiff-appellant).

Appeals from the United States District Court for the Northern District of Texas.

Before GEE, FAY and VANCE, Circuit Judges.

GEE, Circuit Judge:

This case involves an acrimonious disagreement between formerly harmonious associates in the aircraft outfitting business. Instead of more familiar antitrust allegations, such as price fixing or tying arrangements, plaintiffs in this case allege essentially that unfair business practices committed by defendants had such a negative impact on competition as to constitute illegal restraints of trade under section 1 of the Sherman Act 1 and conspiracy or attempts to monopolize under section 2 of the Sherman Act. 2 We shall first set out in some detail the nature of the aircraft outfitting business and the facts relevant to the alleged antitrust violations. We will then discuss why we feel that the jury verdicts and judgments in this case must be upheld, except those against defendant Edwin Hamilton.

The Aircraft Outfitting Business

After World War II, outfitting companies sprang up to convert surplus government aircraft to private use. These companies installed or modified avionics in the surplus

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aircraft and constructed new interiors. When aircraft manufacturers began post-war production of planes for private use, the outfitting companies also began to install original avionics and interiors 3 in "green" 4 aircraft delivered new from the factory. Today some twenty major outfitters throughout this country and a few in Europe outfit a variety of private aircraft. Outfitting work includes a mix of original installation in green aircraft and reoutfitting or refurbishing other aircraft for private or business use.

The plaintiffs in this case are Associated Radio Service Company ("Associated") and Associated Radio Company ("Radio"). The defendants are Page Airways, Inc. and its wholly owned subsidiary, Page Gulfstream, Inc. (collectively referred to as "Page"); Douglas Juston, an officer of Page; Ross C. Chapin, former president and director of both Associated and Radio and, at the time of trial, president of Page; and Edwin C. Hamilton, former assistant to Chapin and, at the time of trial, an officer of Page. Associated has been in the aircraft outfitting business under various names and with assorted business associates since 1948. For a time in the mid-1960's, Associated installed avionics in a variety of aircraft, for which Executive Aircraft provided the hangar space and interior installations. This arrangement terminated in 1968, and Associated at that time decided to open its own complete outfitting facility in Dallas. It continues to operate that facility today.

In 1953, Radio was formed to purchase equipment from manufacturers, to own the inventories, and to sell avionics equipment, primarily to Associated. Radio and Associated had common owners, officers, and directors, but Radio had no employees other than its executive officers. Its nonmanagement activities were performed by Associated's employees. After purchasing avionics equipment from manufacturers, Radio added between 10 and 25 percent to its costs in selling the equipment to Associated. In addition, Radio made some other sales of avionics equipment and supplies to third parties.

In 1967 or 1968, Page became a dealer for green Grumman Gulfstream II's (G-II's). 5 The G-II is the largest and has the longest range of any business aircraft on the market. Its avionics is the most sophisticated, complex, and expensive in the industry. Capable of transoceanic flights, it requires inertial navigation systems (INS) in its avionics package. The Grumman Gulfstream II is always sold green. In the factory, a rudimentary flight package is installed to allow the plane to be ferried to the outfitting facility; after the plane has reached the facility, the flight package is removed, and the plane will no longer fly until it is outfitted with avionics. Grumman began production of this model in 1967, at a rate of about 20 per year. It had produced approximately 130 by mid-1973 and could be expected to produce no more than 270 G-II's before that model became obsolete.

Page and Associated entered into an agreement in 1968 whereby Page would sell the green G-II's, and Associated would design and install, in San Antonio, avionics in those planes for Page's customers. A third party was involved for a time in the installation

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of interiors in the San Antonio G-II facility, but the interior installation operation soon came to be financed and managed by Page and employees of Associated. The name of the interior facility was Associated Page Interiors, Inc. Associated moved its key G-II avionics installation employees to San Antonio and put in a G-II avionics facility that cost about $200,000, plus hangar costs and inventory. Under the contract, Page received as a sales commission ten percent of Associated's billings, except for 18 pending G-II avionics sales that Associated had been working on before its association with Page.

In the years between 1968 and 1973, the contractual arrangement between Page and Associated worked well for Associated. Associated climbed to a prominent position among all avionics outfitters of G-II's; by late 1972, it was installing avionics in just over 50 percent of all G-II's coming off the assembly line. Meanwhile, the number of companies able to compete effectively for G-II outfitting contracts dwindled from eight or nine in 1968 to about five in 1977. 6

Before a company entering the avionics outfitting business can become profitable, it must overcome certain barriers. For example, its employees must ascend a learning curve during which they gain experience and efficiency in working on a certain type of aircraft. In the case of the G-II, this learning curve was estimated variously at one and one-half to two years. 7 In addition, a company must acquire or create engineering diagrams and gain FAA approval, in the form of Supplemental Type Certificates (STC's), for its avionics package in a particular plane. There was evidence showing that it took Associated about two and one-half years after entry to attain a profitable position. Its average profit on its last nine sales before September 1973 was about $52,000 per plane. 8

Defendant's Conduct

Plaintiffs allege that as early as 1971 Page made the decision to enter the avionics outfitting business itself. Plaintiffs further allege that Page entered into an unlawful conspiracy to eliminate plaintiffs as a competitor in the G-II avionics field by, among other things, bribing away plaintiffs' employees; causing the theft of plaintiffs' trade secrets, proprietary information, records, and documents; causing plaintiffs' employees to withhold information from plaintiffs and to work secretly for defendants; interfering with plaintiffs' mechanic's

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lien; and filing spurious lawsuits. The facts show that defendants did indeed hire away Ross Chapin, who was president and director of Associated and vice president and director of Radio, and Edwin Hamilton, Chapin's former assistant. These two men are now officers of Page. Page also copied or caused to be copied engineering diagrams of the avionics packages in several G-II's that had been outfitted by Associated. Some of these copies may have been made before the contractual arrangement came to an end.

In June 1972, Page notified Associated that Page wished to terminate the agreement effective June 20, 1973. It seems that everyone agrees that Page had every right to terminate at that time if it so wished. However, Chapin seems to have allowed contracts for the sale of avionics packages to be made in Page's name while serving as president of Associated and with the knowledge that the airplanes would not be delivered until after the termination of the joint venture. Plaintiffs contend that by copying Associated's engineering drawings and other data, defendants were able to acquire avionics estimated to cost about $250,000 to $350,000 to produce, thus eliminating the two years of effort required for the accumulation of a sufficient number of STC's to be competitive and eliminating the startup losses estimated to cover two and one-half years. By acquiring the avionics drawings and by hiring Associated's employees at the termination of the venture, the defendants were able to avoid the learning curve and to begin work immediately on the avionics packages that Chapin had sold in Page's name.

Associated also contends that an altercation over a debt owed it by Page led to Page filing several spurious lawsuits. In August 1973, Lee Juan Lanford, an officer of Associated, went to San Antonio and discovered that Associated would require...

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