McGahee v. Northern Propane Gas Co.

• Decision Date: 10 April 1987
• Docket Number: Civ. A. No. C83-2617A.
• Citation: 658 F. Supp. 189
• Parties: H. Floyd McGAHEE, Plaintiff, v. NORTHERN PROPANE GAS COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Georgia

658 F. Supp. 189

H. Floyd McGAHEE, Plaintiff, v. NORTHERN PROPANE GAS COMPANY, Defendant.

Civ. A. No. C83-2617A.

United States District Court, N.D. Georgia, Atlanta Division.

April 10, 1987.

James L. Paul, Gambrell, Clarke, Anderson & Stolz, Atlanta, Ga., Frank C. Vann, Vann & McClain, Camilla, Ga., for plaintiff.

Emmet J. Bondurant, Jane F. Vehko, Bondurant, Mixson & Elmore, Atlanta, Ga., for defendant.

ORDER

SHOOB, District Judge.

I. Introduction

Plaintiff H. Floyd McGahee ("McGahee") brought this antitrust action under Section 2 of the Sherman Act, 15 U.S.C. § 2, and under the Robinson-Patman Act, 15 U.S.C. § 13(a), alleging that defendant Northern Propane Gas Company ("Northern Propane") practiced predatory pricing in the retail sale of propane gas. Defendant has moved for summary judgment pursuant to Rule 56, Fed.R.Civ.P. For the reasons stated below, the Court will grant defendant's motion.

The following truncated version of the relevant facts should suffice for present purposes. Propane is a liquid hydrocarbon by-product of crude petroleum and natural gas. The fuel is used for heating and for agricultural functions, such as crop-drying. Because propane does not yield carbon monoxide when burned, it is well-suited to operate industrial vehicles that are used indoors (e.g., forklifts). Propane is a fungible product; consequently, price is of prime importance in the marketplace. Prior to 1981, propane prices were subject to federal regulation. This case involves developments after the market was deregulated in mid-1981.

During the relevant period, the parties operated competing retail propane sales outlets in the Camilla, Georgia area. From September, 1979 to June, 1981, McGahee served as Northern Propane's district manager. McGahee had long been a fixture in the Camilla area, having worked at the same propane outlet for approximately thirty years under several owners.¹ In June, 1981, however, McGahee was demoted to a salesperson position because, according to defendant, he failed to keep adequate records, to keep the accounts receivable current, and to follow company directives. McGahee resigned from defendant's employ on October 9, 1981, under contentious circumstances.²

In May 1982, after obtaining a loan from the Small Business Administration, plaintiff started his own propane sales business. Once on his own, plaintiff acquired a significant percentage of the market and of defendant's client base, and the price war giving rise to this action ensued. With this limited background in place, the Court will turn to the pending motion, highlighting additional facts where appropriate.

II. Analysis

A) The Summary Judgment Standard

At the outset, the Court will set forth the standard controlling practice under Rule 56. To prevail at summary judgment, the moving party must demonstrate the absence of genuine disputes of material fact and factual inferences. Thrasher v. State Farm Fire and Casualty Co., 734 F.2d 637, 638-39 (11th Cir.1984) (per curiam). Recent Supreme Court cases have explained that the moving party need not negate the nonmoving party's case; instead, "the burden on the moving party may be discharged by `showing' — that is, pointing out ... — that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, ___ U.S. ___, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Anderson v. Liberty Lobby, Inc., ___ U.S. ___, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the moving party discharges this burden, the nonmoving party cannot rest on its pleadings, but rather must point to specific evidence giving rise to a triable issue. Celotex, 106 S.Ct. at 2553-54. Thus, summary judgment is appropriate where there is no genuine issue of material fact and, viewed in the light most favorable to the nonmoving party, the undisputed facts warrant judgment as a matter of law. Id. at 2555.

There are, to be sure, factual disputes in the record presented here, but these disputes are not material under the applicable law. Plaintiff argues that defendant acted in large measure out of personal animus. Following this theme, plaintiff depicts himself as an underdog facing a national company bent on destroying his business and monopolizing the relevant market through predatory price cuts.³ Defendant counters that it acted solely to maintain its share of a stagnant market. In ruling on the instant motion, the Court cannot and need not divine the intent behind defendant's pricing policy. Nonetheless, viewing the record objectively, as is proper in a predatory pricing case, see, e.g., Bayou Bottling, Inc. v. Dr. Pepper Co., 725 F.2d 300 (5th Cir.), cert. denied, 469 U.S. 833, 105 S.Ct. 123, 83 L.Ed.2d 65 (1984), the Court concludes that plaintiff's claims fail as a matter of law.

B) The Sherman Act Claim

To establish an attempted monopolization claim under Section 2 of the Sherman Act,⁴ a plaintiff must show (1) that the defendant attempted to achieve a monopoly, and (2) that there was a dangerous probability of success. Swift & Co. v. United States, 196 U.S. 375, 396, 25 S.Ct. 276, 279, 49 L.Ed. 518 (1905); Tiftarea Shopper, Inc. v. Georgia Shopper, Inc., 786 F.2d 1115 (11th Cir. 1986) (per curiam); Quality Foods de Centro America, S.A. v. Latin American Agribusiness Development Corp., 711 F.2d 989, 996 (11th Cir.1983). Plaintiff's claim fails to satisfy either element of this test.

1) Attempt to Monopolize

It is well-settled that proof of a predatory price scheme can satisfy the first element of a Section 2 claim. E.g., id. There is vast disagreement, however, regarding the proper standard for determining whether a defendant has engaged in predatory pricing.⁵ Neither the Supreme Court nor the Eleventh Circuit has set forth a definitive standard, so the Court must elect which of the competing standards to employ. This task requires an understanding of the nature of predatory pricing and the role such schemes play in the economy.

In a predatory pricing scheme, a dominant firm drastically cuts its prices to drive weaker rivals from the market or to deter new rivals from entering the market. See, e.g., Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1355 n. 8, 89 L.Ed.2d 538 (1986). "Predation in any meaningful sense cannot exist unless there is a temporary sacrifice of net revenues in the expectation of greater future gains." Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697, 698 (1975); see also Matsushita, 106 S.Ct. at 1357; International Air Industries v. American Excelsior Co., 517 F.2d 714, 723 (5th Cir. 1975), cert. denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976); Easterbrook, Predatory Strategies and Counterstrategies, 48 U.Chi.L.Rev. 263, 268 (1981). Thus, to succeed, a predator must tame the market sufficiently to achieve the power to set supracompetitive prices; in addition, the predator must retain monopoly power long enough for "the ... flow of profits, appropriately discounted, ... to exceed the present size of the losses" incurred by the price cut. R. Bork, The Antitrust Paradox at 145 (1978); Williamson, Predatory Pricing: A Strategic and Welfare Analysis, 87 Yale L.J. 284, 292 (1977); Areeda & Turner, supra, 88 Harv.L.Rev. at 698. Of course, in a market with pronounced entry barriers, a predator's investment is less risky, since it is easier to retain monopoly power in such a market. Id. at 699; Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc., 735 F.2d 884, 891 (5th Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985); International Air, 517 F.2d at 724.

Given the inherently speculative nature of predatory pricing schemes, "there is a consensus among commentators that ... such tactics are rarely tried, and even more rarely successful." Matsushita, 106 S.Ct. at 1357-58; see R. Bork, supra, at 149-55; Areeda & Turner, supra, 88 Harv. L.Rev. at 699; Koller, The Myth of Predatory Pricing — An Empirical Study, 4 Antitrust Law & Econ.Rev. 105 (1971). On the other hand, advancing a claim of predatory pricing may seem attractive to an inefficient competitor reeling from stiff price competition. Because such suits can stifle competition, a standard that can be applied readily at summary judgment may best serve antitrust policy. See, e.g., Williamson, supra, 87 Yale L.J. at 288; cf. Harlow v. Fitzgerald, 457 U.S. 800, 818-20, 102 S.Ct. 2727, 2738-39, 73 L.Ed.2d 396 (1982).⁶

Against the foregoing backdrop, the Court has little trouble rejecting plaintiff's suggestion that this case be judged under traditional subjective notions of intent. Simply stated, an objective test for predatory pricing is necessary to forestall nuisance suits that could chill the vigorous price competition that antitrust laws seek to foster. Accordingly, in recent years, courts faced with predatory pricing claims have almost uniformly relied on cost-based standards. There is, nonetheless, considerable debate as to which cost-based test is superior. See generally Vawter & Zuch, A Critical Analysis of Recent Federal Appellate Decisions on Predatory Pricing, 51 Antitrust L.J. 401 (1983). As noted above, see supra at n. 5, the Court will apply the test enunciated by the former Fifth Circuit in International Air, a test based largely on rules first formulated by Professors Areeda and Turner.

Areeda and Turner proposed two chief rules for judging predatory pricing claims: (1) "a price at or above the defendant's average variable cost should be conclusively presumed lawful"; and (2) "a price below reasonably anticipated average variable cost should be conclusively presumed unlawful."⁷ Areeda and Turner, supra, 88 Harv.L.Rev. at 733; see also P. Areeda and D. Turner, Antitrust Law ¶¶ 711-722 (1978); Areeda & Turner, Williamson on Predatory Pricing, 87 Yale L.J. 1337 (1978). These rules rest on the theory that a price above or equal to average variable...