A. H. Cox & Co. v. Star Machinery Co.

• Decision Date: 17 August 1981
• Docket Number: No. 78-3574,78-3574
• Citation: 653 F.2d 1302
• Parties: 1981-2 Trade Cases 64,238 A. H. COX & COMPANY, a corporation, Plaintiff-Appellant, v. STAR MACHINERY COMPANY, a corporation; Star Rentals, Inc., a corporation; and R. O. Products, Inc., a corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1302

653 F.2d 1302

1981-2 Trade Cases 64,238

A. H. COX & COMPANY, a corporation, Plaintiff-Appellant, v. STAR MACHINERY COMPANY, a corporation; Star Rentals, Inc., a corporation; and R. O. Products, Inc., a corporation, Defendants-Appellees.

No. 78-3574.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 10, 1980.

Decided Aug. 17, 1981.

Frederic C. Tausend, Schweppe, Doolittle, Krug, Tausend & Beezer, Seattle, Wash., for plaintiff-appellant.

Bill Helsell, Helsell, Fetterman, Martin, Todd & Hokanson, Seattle, Wash., for defendants-appellees.

Appeal from the United States District Court for the Western District of Washington.

Before TRASK and KENNEDY, Circuit Judges, and TASHIMA, ^* District judge.

KENNEDY, Circuit Judge:

In this antitrust action, one distributor wrested a product line away from a second distributor, its principal competitor. The injured firm sued both the distributor who took the line and the manufacturer-supplier, alleging violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2 (1976). The complaint charged an attempt to monopolize the relevant market and a concerted refusal to deal. After reviewing allegations of the plaintiff in response to a summary judgment motion by the defense, the district court found that plaintiff had offered no evidence from which an unlawful intent could be established and, accordingly, it granted the defendant's motion for summary judgment on both counts. We affirm.

A. H. Cox & Co. (Cox) was an independent distributor of heavy equipment, including truck mounted hydraulic cranes with capacities ranging from 4 to 10 tons. ¹ Truck mounted cranes of this type are used extensively in the construction industry to set pipelines, position trusses on buildings, and move equipment and materials at yards and job sites. Cox's primary competitor, both for the sale of truck mounted hydraulic cranes and the sale of other heavy equipment generally, was Star Machinery Co., including its wholly owned subsidiary, Star Rentals, Inc., both referred to here as "Star."

During 1974, the relevant period in this action, four domestic manufacturers accounted for 95 percent of all small truck mounted cranes manufactured and sold nationwide. These manufacturers were R. O. Products, Inc. (R. O.), Pitman Manufacturing Co. (Pitman), National Crane Co., and Scott Midland. The market at issue here is the retail distribution of these small truck mounted cranes in a three county area of western Washington that roughly comprises metropolitan Seattle. Within this market, all four major manufacturers of truck cranes were represented, each by a distributor which carried one line exclusively. The two principal manufacturers' lines involved in this action were R. O. and Pitman, distributed by Cox and Star respectively. Star's retail sales of the Pitman crane accounted for approximately 50 percent of the market. Cox, its closest competitor, had sales comprising 20 to 25 percent of the market. Two other dealers and their respective products took up most of the balance. The crux of the dispute is that Star succeeded in persuading R. O. to let Star carry its line instead of Cox. Pitman was then assigned from Star to a Seattle distributor called Fray Equipment Co. (Fray), and Cox was left without any line.

Cox claims Star knew Cox had financial difficulty and was dependent on the R. O. line, and that Star took the R. O. line in order to eliminate Cox as a competitor. Cox further asserts that Star secured the R. O. line by unfair methods of competition, in that it elicited confidential financial data about Cox from former Cox employees and then distorted and misrepresented the gravity of Cox's financial predicament to R. O. It is alleged that loss of the R. O. line created severe cash flow problems for Cox. Two and a half years after losing the line, Cox declared bankruptcy.

In the complaint below, Cox alleged that Star attempted to monopolize the retail sale by distributors of small truck mounted cranes in violation of section 2 of the Sherman Act, and that Star and R. O. conspired to refuse to deal in violation of section 1 of the Sherman Act. ² The complaint further asserted pendent state claims based on alleged state antitrust violations and on torts of commercial misconduct. The district court found that Cox failed to show any triable issue of fact or proof in support of its claims that Star acted with an unlawful intent to restrain competition and attempted to gain a monopoly, control prices, and exclude competition. The court entered summary judgment against Cox on its antitrust claims and dismissed the pendent state claims without prejudice. Cox appeals from the summary judgment.

In reviewing the grant of summary judgment, we of course must view the evidence and all permitted inferences in favor of Cox, and uphold the lower court's dismissal only if Star has met its burden of proving the absence of any genuine issues of material fact. Blair Foods, Inc. v. Ranchers Cotton Oil, 610 F.2d 665, 668 (9th Cir. 1980); Mutual Fund Investors, Inc. v. Putnam Management Co., 553 F.2d 620, 624 (9th Cir. 1977). We must recognize further that summary judgments are disfavored in antitrust cases, especially when motive or intent is at issue. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962); Sierra Wine & Liquor Co. v. Heublein, Inc., 626 F.2d 129, 132 (9th Cir. 1980). We nevertheless agree with the district court that summary judgment should be granted in this case.

Cox contends that Star's agreement with R. O. prior to Cox's termination constituted an unreasonable restraint of trade in violation of section 1 of the Sherman Act. Cox argues that whether this combination is deemed per se unreasonable, or simply judged under the rule of reason, this concerted refusal to deal should be held unlawful.

At the outset, we note that there are four categories of competitive restraints which have been held unreasonable per se: (1) horizontal and vertical price fixing; (2) horizontal market division; (3) group boycotts and concerted refusals to deal; and (4) tie-in sales. Gough v. Rossmoor Corp., 585 F.2d 381, 386 (9th Cir. 1978), cert. denied, 440 U.S. 936, 99 S.Ct. 1280, 59 L.Ed.2d 494 (1979). While a theory of the complaint is that Star and R. O. conspired to refuse to deal with Cox, the law appears settled that a per se violation will result only where "there has been some horizontal concert of action taken against victims of the restraint." ³ Id. at 387. Mutual Fund Investors, Inc. v. Putnam Management Co., supra, 553 F.2d at 626-27; see Oreck Corp. v. Whirlpool Corp., 579 F.2d 126 (2d Cir.) (en banc), cert. denied, 439 U.S. 946, 99 S.Ct. 340, 58 L.Ed.2d 338 (1978). Since there is no horizontal impact in this case, ⁴ the agreement between Star and R. O. must be judged under the rule of reason. ⁵

To prove the restraint of trade unreasonable, Cox must show the refusal to deal was intended to, or actually did, restrain trade. Marquis v. Chrysler Corp., 577 F.2d 624, 639-40 (9th Cir. 1978); Knutson v. Daily Review, Inc., 548 F.2d 795, 803 (9th Cir. 1976), cert. denied, 433 U.S. 910, 97 S.Ct. 2977, 53 L.Ed.2d 1094 (1977). We assume for purposes of testing Cox's case that Cox can prove its business failure was a direct and foreseeable result of Star's actions. That Star foresaw the result, however, does not in this case constitute the unlawful purpose proscribed by the antitrust laws. It is well established that exclusive distribution arrangements, while restraints in one sense, nevertheless serve to promote interbrand competition. See, e. g., Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 38-39, 51-59, 97 S.Ct. 2549, 2551, 2558-2562, 53 L.Ed.2d 568 (1977); Packard Motor Car Co. v. Webster Motor Car Co., 243 F.2d 418, 420 (D.C.Cir.), cert. denied, 355 U.S. 822, 78 S.Ct. 29, 2 L.Ed.2d 38 (1957). Manufacturers therefore may grant exclusive dealerships, and even cut off an existing dealer in order to do so, Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71, 76 (9th Cir. 1969), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970), provided there is no overriding purpose to eliminate competition in the relevant market. Mutual Fund Investors, Inc. v. Putnam Management Co., supra, 553 F.2d at 626; Bushie v. Stenocord Corp., 460 F.2d 116, 119-20 (9th Cir. 1972). Competition is promoted when manufacturers are given wide latitude in establishing their method of distribution and in choosing particular distributors. Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977); United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919); Ron Tonkin Gran Turismo, Inc. v. Fiat Distributors, Inc., 637 F.2d 1376 (9th Cir. 1981). Judicial deference to the manufacturer's business judgment is grounded in large part on the assumption that the manufacturer's interest in minimum distribution costs will benefit the consumer. Continental T.V., Inc. v. GTE Sylvania, Inc., supra, 433 U.S. at 54-56, 97 S.Ct. at 2559-2560; Note, Vertical Agreements to Terminate Competing Distributors: Oreck Corp. v. Whirlpool Corp., 92 Harv.L.Rev. 1160, 1164 (1979). A contrary rule would foster rigidity in distribution arrangements, a result antithetical to a market dependent on vigorous competitive forces. Cartrade, Inc. v. Ford Dealers Advertising Ass'n, 446 F.2d 289, 294 (9th Cir. 1971).

Most cases recognizing the right to establish an exclusive manufacturer-dealer relation arise when an arrangement is formed or changed at the behest of the manufacturer. See, e. g., Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245, 1247 (5th Cir. 1975); Bushie v. Stenocord Corp., supra, 460 F.2d at 118. As a general rule, such arrangements have been viewed as vertical in nature, thus rendering the per se rule of illegality inapplicable. Gough v. Rossmoor Corp., supra, 585 F.2d...