Murphy Tugboat Co. v. Crowley

Decision Date15 October 1981
Docket NumberNo. 79-4266,79-4266
Citation658 F.2d 1256
Parties1981-1 Trade Cases 64,000 MURPHY TUGBOAT COMPANY, Plaintiff-Appellant, v. Thomas B. CROWLEY; Shipowners & Merchants Towboat Company, Ltd,; Bay Cities Transportation Company; Harbor Tug & Barge Company; Tug Sea Cloud, Inc.; Tug Sea Fox, Inc.; Tug Sea Horse, Inc.; Tug Sea King, Inc.; Tug Sea Lark, Inc.; Tug Sea Lion, Inc.; Tug Sea Prince, Inc.; Tug Sea Robin, Inc.; Tug Sea Rover, Inc.; Tug Valiant, Inc.; Tug Trojan, Inc.; Tug Atlas, Inc.; Tug Sea Wolf, Inc.; Crowley Launch & Tugboat Company; Cary-Davis Tug & Barge Company and Long Beach Tugboat Company, Inc., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Ronald Lovitt, Lovitt & Hannan, Inc., San Francisco, Cal., argued, for plaintiff-appellant; Robert L. Palmer, Martori, Meyer, Henricks & Victor, Phoenix, Ariz., Henry I. Bornstein, San Francisco, Cal., on brief.

Kristina M. Hansen, San Francisco, Cal., argued, for defendants-appellees; Richard J. Archer, Sullivan, Jones & Archer, San Francisco, Cal., on brief.

Appeal from the United States District Court for the Northern District of California.

Before WALLACE and POOLE, Circuit Judges, and SMITH, * District Judge.

WALLACE, Circuit Judge:

In this treble damages antitrust action pursuant to section 4 of the Clayton Act, 15 U.S.C. § 15, Murphy Tugboat Company appeals from a judgment n. o. v. in favor of defendant competitor tugboat companies. We affirm.

I

Defendants Shipowners & Merchants Towboat Company (Red Stack) and Bay Cities Transportation Company (Bay Cities) have been long established in the ship assisting and ship towing business in San Francisco Bay and its tributaries. Defendant Crowley Maritime Corporation is a holding company for the two tugboat companies. Defendant Thomas B. Crowley was the principal officer of and had substantial ownership interest in each of these companies. Plaintiff Murphy Tugboat Company (Murphy) entered the ship assisting business in the fall of 1971. It remained in business until September 1975.

Ship assisting is the providing of tugs to aid vessels in docking or undocking. Although some ships under some circumstances can dock or undock without the use of tugs, they frequently require the assistance of one or more tugs. Tugs also perform "flat tows," moving vessels that are not under power.

From 1971 to 1975 Red Stack and Bay Cities performed at least 70% of the tug assisted docking and undocking in San Francisco Bay (excluding military and other proprietary operations). Bay Cities, operating small tugs, served primarily small vessels vessels of less than 14,000 net tons. It charged a flat rate per tug. Red Stack, operating larger tugs, usually served larger vessels. It used a grid tariff that took into account the size of the vessel and the length of the ship assist move. This grid tariff generally produced higher charges.

For some years prior to Murphy's entry into the market, Red Stack and Bay Cities had a policy of refusing, except in emergencies, to provide service to a vessel that was being assisted by tugs of another company. Red Stack and Bay Cities justified this policy in terms of the hazards of divided responsibility in ship handling. However, other companies under common control with Red Stack and Bay Cities, but operating in different harbors, did not have such a policy. There was evidence before the jury that large vessel and flat tow customers were deterred from hiring a Murphy tug by the knowledge that if the need for additional tugs arose during the operation, they would not be available.

Most docking and undocking requires the services of an inland pilot. The masters of Red Stack tugs were licensed inland pilots. When Red Stack tugs assisted a vessel, the master of one of the tugs would, at the vessel's request, serve as pilot. Red Stack made no extra charge for this service, but the Red Stack employee pilot collected a fee from the vessel. That fee was set by agreement between Red Stack and the Red Stack Pilots' Association (RSPA).

The jury awarded damages of $700,000 against several defendants for violation of section 2 of the Sherman Act, 15 U.S.C. § 2, predicated on the boycott of ships making use of the tugs of other companies. The jury also awarded $100,000 against Red Stack for violation of section 1 of the Sherman Act, 15 U.S.C. § 1, by virtue of the RSPA agreement. The district judge granted judgment n. o. v. on the section 1 claim on the basis that the RSPA agreement was immune under the labor exemption of the Clayton Act, 15 U.S.C. § 17, and under the theory that a corporation and its employees cannot conspire to restrain competition within the meaning of section 1 of the Sherman Act. In addition, the district judge found that the jury damages award under section 1 was unsupported by the evidence. Judgment n. o. v. was granted on the section 2 claim, involving the boycott of ships assisted by other companies' tugs, because the district judge found that there was insufficient evidence supporting Murphy's damages theory on this claim. Murphy Tugboat Co. v. Shipowners & Merchants Towboat Co., 467 F.Supp. 841 (N.D.Cal. 1979).

II

In asserting its section 1 claim, Murphy relies on the fact that when a Red Stack pilot was used, the fees, as fixed by the RSPA agreement, were lower than the fees otherwise charged by pilots in the San Francisco Bay area. Murphy argues that this agreement was anticompetitive and that Murphy was injured thereby because the Red Stack package price, including tugs and pilot fee, was lower as a result of the agreement than it otherwise would have been. If the Red Stack package price had been higher, Murphy contends that it would have been able either to have charged a higher price itself, while maintaining its market share, or to have maintained its price thereby obtaining a larger market share.

We conclude that if Murphy was injured by the RSPA agreement it was not "by reason of anything forbidden in the antitrust laws ...." 15 U.S.C. § 15. 1 By keeping pilots on its payroll as part of its five man tugboat crews, Red Stack was indirectly able to make available to its customers pilot services at discount rates. Thus, the RSPA agreement amounts to an indirect subsidy given by Red Stack to its customers, at a cost to Red Stack of the wages of its pilot-employees.

Because Murphy did not itself provide pilot services, it is not in a position to, and does not, complain that it was injured by the RSPA fee, except as that fee was perceived by customers as a component of Red Stack's package price. See California Computer Products, Inc. v. International Business Machines Corp., 613 F.2d 727, 732 (9th Cir. 1979). Thus the test for whether the RSPA agreement constitutes an unreasonable restraint of trade of which Murphy can complain is the same test as that for whether Red Stack's overall pricing policies constitute anticompetitive conduct.

Because "(t)he antitrust laws ... were enacted for 'the protection of competition, not competitors,' " Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977), quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521, 8 L.Ed.2d 510 (1962), those laws do not prohibit non-predatory conduct that results in a lower price to the consumer. The antitrust laws do not require the erection of a price umbrella for the benefit of inefficient competitors. Thus, whether Murphy can complain of the RSPA agreement as a violation of section 1 of the Sherman Act depends on whether the agreement was in furtherance of a scheme of predatory pricing.

Murphy concedes that Red Stack's prices were always significantly higher than Murphy's own in some cases over twice as high. Murphy does not allege that Red Stack's marginal costs, 2 which would include the labor based cost of providing the indirect subsidy through the RSPA agreement, ever exceeded Red Stack's price. Red Stack's pricing, therefore, was not predatory for the reasons stated by the district court in Murphy Tugboat Co. v. Crowley, 454 F.Supp. 847, 853-57 (N.D. Cal. 1978). Pierce Packing Co. v. John Morrell & Co., 633 F.2d 1362, 1365-66 (9th Cir. 1980); see California Computer Products v. International Business Machines Corp., supra, 613 F.2d at 742-43; Janich Brothers, Inc. v. American Distilling Co., 570 F.2d 848, 857-58 (9th Cir. 1977), cert. denied, 439 U.S. 829, 99 S.Ct. 103, 58 L.Ed.2d 122 (1978); Hanson v. Shell Oil Co., 541 F.2d 1352, 1358-59 (9th Cir. 1976), cert. denied, 429 U.S. 1074, 97 S.Ct. 813, 50 L.Ed.2d 792 (1977). As Red Stack's overall pricing conduct was legal, the RSPA agreement in furtherance of that conduct was also legal.

Because we conclude as a matter of law that the RSPA agreement is not a contract or conspiracy in restraint of trade within the meaning of section 1 of the Sherman Act of which Murphy can complain, we need not consider whether that agreement would fall under either the labor exemption to the antitrust laws, 15 U.S.C. § 17, or the principle that agreements between a corporation and its employees do not constitute a conspiracy under section 1, see Chapman v. Rudd Paint & Varnish Co., 409 F.2d 635, 643 n.9 (9th Cir. 1969).

III

Even though the district judge concluded that the jury could properly find the boycott illegal and that it had an adverse impact on Murphy, he held that Murphy's proof of damages was insufficient in its Sherman Act section 2 claim. Although Murphy was not entirely consistent on the legal theory underlying its damages computation pursuant to section 2, the final theory contains two damage components. The first is lost profits attributable to Red Stack's boycott of jobs on which a Murphy tug was used, up to the time that Murphy ceased operation. The second component was lost future profits for the five years following its...

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