Schoenkopf v. Brown & Williamson Tobacco Corp., 80-1327

• Decision Date: 26 January 1981
• Docket Number: R,No. 80-1328,No. 80-1327,80-1327,80-1328
• Citation: 637 F.2d 205
• Parties: 1980-81 Trade Cases 63,687 SCHOENKOPF, Richard, d/b/a "Vend-Mark" v. BROWN & WILLIAMSON TOBACCO CORPORATION and Loew's Theatres, Inc. and R. J. Reynolds Tobacco Company, Richard W. Schoenkopf, d/b/a "Vend-Mark", Appellant inJ. Reynolds Tobacco Company, Appellant in/8.
• Court: U.S. Court of Appeals — Third Circuit

Page 205

637 F.2d 205

1980-81 Trade Cases 63,687

SCHOENKOPF, Richard, d/b/a "Vend-Mark" v. BROWN & WILLIAMSON TOBACCO CORPORATION and Loew's Theatres Inc. and R. J. Reynolds Tobacco Company, Richard W. Schoenkopf, d/b/a "Vend-Mark" Appellant in No. 80-1327 R. J. Reynolds Tobacco Company, Appellant in No. 80-1328.

No. 80-1327/8.

United States Court of Appeals Third Circuit.

Argued Oct. 16, 1980.

Decided Dec. 29, 1980.

Rehearing and Rehearing In Banc Denied Jan. 26, 1981.

Arnold Levin, Michael D. Fishbein (argued), Adler, Barish, Daniels, Levin & Creskoff, Philadelphia, Pa., for Richard Schoenkopf.

Charles C. Hileman, III, Peter S. Greenberg (argued), Carole E. Handler, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for Brown & Williamson Tobacco Corp.

Franklin Poul (argued), Diane J. Sigmund, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., for Loew's Theatres, Inc.

John G. Harkins, Jr. (argued), Marjorie G. Marinoff, Richard M. Bernstein, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for R. J. Reynolds Tobacco Co., Thomas J. Rucker, Associate Counsel, Winston-Salem, N. C., of counsel.

Before GIBBONS and ROSENN, Circuit Judges and WEBER, ^* District Judge.

OPINION OF THE COURT

GIBBONS, Circuit Judge

Plaintiff, Richard Schoenkopf brought suit against R. J. Reynolds Tobacco Company (RJR), Brown & Williamson Tobacco Corporation (B & W), and Loew's Theatres, Inc. (Lorillard), alleging violations of the Sherman Act and the Robinson-Patman Act, and alleging breaches of contracts. Schoenkopf sought treble damages for the alleged Sherman Act violations, injunctive relief under the Robinson-Patman Act, and damages for his contractual claims. The case was tried before a jury. At the conclusion of plaintiff's evidence, the district court granted defendants' motions for directed verdicts with respect to the Sherman Act claims. By agreement of the parties, the jury was discharged, leaving the court to decide the remaining claims. The court found in favor of each defendant on the Robinson-Patman Act claims, and in favor of Schoenkopf against each defendant on the contract claims. Schoenkopf appeals the adverse judgments on the antitrust claims. RJR cross-appeals from the district court's judgment in his favor on the contract claim against it. We affirm.

The defendants are three of the six major tobacco companies which manufacture cigarettes in the United States. ¹ Collectively, these companies manufacture over 100 different brands of cigarettes. Each markets its cigarettes, in part, by sales through vending machines. Because space in the vending machines is limited, each tobacco company offers a promotional allowance in an effort to induce vending machine operators to place its brands in their machines. A vending machine operator participating in such a promotional program might receive from each manufacturer approximately $1.50 to $15.00 a year for each machine. An operator can receive allowances from more than one company and, depending on the combination of brands placed in a machine, could receive allowances totalling as much as $39 a machine.

Explaining that small operators, typically owning only one or two vending machines located at their places of business, are often unaware and fail to take advantage of these promotional allowances, the district court described plaintiff's role:

The plaintiff, in the middle of 1976, started a company known as "Vend-Mark". The purpose of Vend-Mark was to act as an independent reporting agent for people who operated only a few vending machines and wished to participate in the promotional allowance programs offered by the tobacco companies. The plaintiff entered into agreements with each of the six major tobacco companies that basically provided that Vend-Mark would submit a promotional allowance report to the company at the end of each quarter which covered all of the machines of operators for whom the plaintiff was the reporting agent. The tobacco companies paid Vend-Mark directly for these reports, and the plaintiff, pursuant to the arrangements he had made with the small operators, remitted fifty percent of the payment covering their particular machine or machines to them.

Vend-Mark was successful and grew rapidly. By the end of the third quarter of 1977, Vend-Mark was reporting for 3,496 machines, and there were 5,520 machines for which Vend-Mark was reporting at the end of the first quarter of 1978. At the time of trial, Vend-Mark was reporting for approximately 4,200 machines.

483 F.Supp. 1185, 1188 (E.D.Pa.1980).

In December, 1977, B & W notified Schoenkopf that it was cancelling its contract with him because he was neither an owner nor an operator of vending machines, as it contended was contemplated by that company's contract. B & W and Schoenkopf unsuccessfully negotiated alternative arrangements until March 6, 1978 when B & W finalized its termination of plaintiff's contract. On March 31, 1978, Lorillard terminated Schoenkopf's reporting contract. RJR terminated his reporting agreement on May 1, 1978.

I. Sherman Act Claims

Schoenkopf claims that the defendants' refusals to deal with him were the result of a conspiracy in violation of section 1 of the Sherman Act. In reviewing the directed verdict in favor of the defendants, we must consider the evidence in the light most favorable to the plaintiff. We agree, however, that Schoenkopf has produced no evidence from which a jury could reasonably infer that the defendants conspired in refusing to deal with him.

Section 1 of the Sherman Act prohibits only joint action; independent business decisions and actions cannot be the basis for a section 1 claim. See Modern Home Institute, Inc. v. Hartford Accident and Indemnity Co., 513 F.2d 102, 108 (2d Cir. 1975), citing Ford Motor Co. v. Webster's Auto Sales, Inc., 361 F.2d 874 (1st Cir. 1966). Because of the difficulty in proving an antitrust agreement, especially where there are only a few companies participating in the trade, circumstantial evidence "aid(s) in demonstrating the existence of sophisticated and silent agreements which so often have injuriously restrained trade." Delaware Valley Marine Supply Co. v. American Tobacco Co., 297 F.2d 199, 202 (3d Cir. 1961), cert. denied, 369 U.S. 839, 82 S.Ct. 867, 7 L.Ed.2d 843 (1962). The courts have recognized that consciously parallel business behavior, when coupled with other circumstances, supports an inference of agreement. See Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U.S. 537, 540-41, 74 S.Ct. 257, 259, 98 L.Ed. 273 (1954).

To establish consciously parallel behavior, a plaintiff must show (1) that the defendants' business behavior was parallel, and (2) that the defendants were conscious of each other's conduct and that their awareness was an element in their decisional process. Plaintiff Schoenkopf has introduced evidence that, despite B & W's earlier indication of its intent to cancel, and the companies' varying purported reasons for so acting, actual termination of his business relationship with each of the defendants occurred within several months following more than a year of his dealing with these companies. Schoenkopf also offered uncontradicted evidence that the defendants' representatives had attended a trade show of the National Automatic Merchandising Association in Chicago between October 12, 1977 and October 16, 1977. Although this court has previously noted that a mere showing of opportunity for conspiracy, without more, is insufficient to support an inference of consciously parallel action, the added facts that B & W, Lorillard, and RJR each terminated their reporting agreements with the plaintiff on March 6, 1978, March 31, 1978, and May 1, 1978 respectively permits an inference that the opportunity had been taken advantage of. Cf. Venzie Corp. v. United States Mineral Products Co., Inc., 521 F.2d 1309, 1313 (3d Cir. 1975). This evidence, although certainly not overwhelming, is sufficient to support an inference that defendants' conduct was consciously parallel. For purposes of reviewing the directed verdict, defendants' denials and explanations cannot be considered.

Conscious parallelism, albeit some indication of a "silent agreement," is in itself, however, insufficient circumstantial evidence from which to infer an antitrust violation. See, e. g., Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., supra; Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977), cert. denied, 434 U.S. 1086, 98 S.Ct. 1280, 55 L.Ed.2d 791 (1978). As we have recently held, before such an inference may be drawn a plaintiff must also show (1) that the defendants acted in contradiction of their economic interests, and (2) that the defendants had a motive to enter into an agreement. Venzie Corp. v. United States Mineral Products Co., Inc., supra, 521 F.2d at 1314, citing First National Bank v. Cities Service Co., 391 U.S. 253, 287, 88 S.Ct. 1575, 1591, 20 L.Ed.2d 569 (1968); Delaware Valley Marine Supply Co. v. American Tobacco Co., supra. Absent such additional evidence a directed verdict or a judgment notwithstanding the verdict should be granted.

Asserting that the defendants' independent business justifications for terminating business relations with him were a "sham," Schoenkopf argues that the defendants acted contrary to their individual self-interest. He explains how his services filled a gap in the defendants' marketing programs, relieving the tobacco companies of the cost and administrative expense in locating and processing the reports of independent vending machine operators. The evidence of record, however, belies his theory. His services neither fulfilled the objectives of the promotional allowance programs nor benefitted the defendants. The purpose of the allowances was to encourage vendors to stock and display a particular company's brands. The tobacco companies benefitted only if the vendors recognized that the allowances directly...