677 F.2d 946 (2nd Cir. 1982), 75, Schwimmer v. Sony Corp. of America

Docket Nº:75, Docket 81-7135.
Citation:677 F.2d 946
Party Name:Mendel SCHWIMMER d/b/a Supersonic Electronics Co., Plaintiff-Appellee, v. SONY CORPORATION OF AMERICA, Defendant-Appellant.
Case Date:May 03, 1982
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 946

677 F.2d 946 (2nd Cir. 1982)

Mendel SCHWIMMER d/b/a Supersonic Electronics Co., Plaintiff-Appellee,

v.

SONY CORPORATION OF AMERICA, Defendant-Appellant.

No. 75, Docket 81-7135.

United States Court of Appeals, Second Circuit

May 3, 1982

Argued Sept. 21, 1981.

I. Scott Bass, New York City (Steven R. Trost, Lawrence H. Roth, Irving L. Wiesen, Bass, Ullman & Lustigman, New York City, on the brief), for plaintiff-appellee.

Joshua Greenberg, New York City (Randolph S. Sherman, Ira S. Sacks, Kaye, Scholer, Fierman, Hays & Handler, New York City, Asa D. Sokolow, Douglas N. Gordon, Brian G. Lustbader, Rosenman Colin Freund Lewis & Cohen, New York City, on the brief), for defendant-appellant.

Before NEWMAN and KEARSE, Circuit Judges, and DALY, District Judge. [*]

KEARSE, Circuit Judge.

Defendant Sony Corporation of America ("Sonam") appeals from a judgment of the

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United States District Court for the Eastern District of New York, Eugene H. Nickerson, Judge, entered upon a jury verdict in favor of plaintiff Mendel Schwimmer ("Schwimmer") d/b/a Supersonic Electronics Co. ("Supersonic") in the amount of $675,000 before trebling and exclusive of attorney's fees, for Sonam's termination of Supersonic as a dealer in Sony products, pursuant to a conspiracy between Sonam and certain of its other dealers and distributors in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (1976). On appeal Sonam's principal argument is that the district court erred in denying Sonam's motion pursuant to Fed.R.Civ.P. 50(b) for judgment notwithstanding the verdict. We agree with Sonam that there was insufficient evidence to support an inference that the alleged conspiracy existed, and we therefore reverse the judgment.

I. FACTS

From January 1976 until April 1977, Supersonic was a dealer in Sony electronic consumer products such as radios, tape recorders, and color television sets. The gist of Supersonic's claim is that Sonam, pursuant to a general conspiracy between it and its customers to restrain trade in Sony consumer products, terminated Supersonic's dealership because Supersonic sold such products to retailers in geographical areas other than the New York metropolitan area where Supersonic was located (a practice known as "transshipping") and sold at prices lower than those offered by other Sony customers. Viewed in the light most favorable to Supersonic, the party that prevailed at trial, see Part II, infra, the evidence revealed the following events leading to Supersonic's termination.

  1. Sonam's Distribution System

    Sonam is the wholly-owned United States sales subsidiary of Sony Corporation, a Japanese manufacturer of electronic products. At the times pertinent to this case, Sonam marketed its consumer products in essentially two ways. In most areas of the United States, Sonam sold to independent distributors, who sold at wholesale rates to retail dealers, who sold to consumers. In the larger metropolitan areas, including the New York City area, Sonam sold its products directly to the dealers. Sonam also sold directly to "national accounts," which were dealers with retail operations in a number of different geographical areas; these included certain department stores and certain dealers allied as joint buying groups.

    Sonam did not grant exclusive distributorships or dealerships within given geographical areas. Rather it assigned each distributor a primary area of responsibility, although distributors remained free to operate outside of their primary areas. During the pertinent period, Sonam placed no restrictions on the rights of its dealers to sell in any area. 1 Prior to April 1975, Sonam had retail price lists that it provided to dealers, and it took advantage of "Fair Trade" laws 2 to require dealers to sell at the prescribed prices. In April 1975, with the abolition of Fair Trade laws in the offing, see note 2, supra, Sonam established instead "suggested" retail price lists and ceased to insist on adherence to the listed retail prices.

    The prices at which Sonam sold its products to dealers were subject to a number of

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    possible discounts. There were various discounts related to the timing of the dealer's payments, and there were volume discounts in varying percentages for bulk purchases in individual orders and for cumulative purchases through the course of a year. 3 When totaled, those discounts could amount to about 15 percent of Sonam's stated prices to dealers. The availability of such discounts made it possible for a high-volume dealer who bought directly from Sonam both to charge retail prices substantially below the prices charged by dealers who adhered to Sonam's suggested list prices, and to resell to other retail dealers (i.e., to transship) at lower prices than those normally charged to retailers by Sonam or its distributors. The strong consumer demand for Sony products and the elimination of Sonam's Fair Trade practices in the spring of 1975 led a number of Sony dealers to engage in transshipping and price cutting, and Sonam began to receive complaints of such activities from other distributors and retailers.

    All Sonam witnesses who had received such complaints testified that Sonam's response to the complaints had been that Sonam could not do anything to curtail the price cutting or the transshipping. Various witnesses adverted to customer complaints only in general terms; the most detailed testimony came from former Sonam executive Joseph Sadowy, who, in the spring of 1977, had been discharged by Sonam for his role in the events that immediately preceded the termination of Supersonic's dealership. Sadowy, who had been general manager of Sonam's eastern region in the mid-1970's, described Sonam conversations during that period with officials of Macy's, Abraham & Straus ("A&S"), and Gimbels. With respect to a discussion with a Macy's vice president, Sadowy testified:

    The one conversation that I remember is he was complaining about the transshipping. He was complaining about the price cutting. And the end result of this discussion at that time, Macy's decided to bring out their own brand. And they called it Super Macy. That was as a result of this price cutting that was going on in the market. So Macy's said-and I believe Bamberger's sells the same line. That was basically the whole conversation.

    (Tr. 161.) As to A&S, Sadowy testified that its vice president Kagan "was very upset because of the price cutting. And he wanted to make his full markup. And just that kind of conversation." (Tr. 162.) According to Sadowy, Sonam vice president Raymond Steiner "tried to assure (Kagan) we were working on programs to help him out at that meeting and that there were going to be changes in our program to help reduce the transshipping and price cutting. We were going to have some stability." (Id.) 4 When Sadowy and two other Sonam executives met again with Kagan and the president of A&S, and Kagan reiterated his dissatisfaction, the Sonam employees did not respond. Sadowy stated that there were no further meetings with A&S because A&S "stopped buying Sony's products at that point." (Tr. 165.) Sadowy also testified that he had discussed transshipping with a representative of Gimbels along the same lines. According to Harvey Schein, Sonam's president from 1972 until the summer of 1977, after Sonam told Gimbels that there was nothing Sonam could do about the complaints, Gimbels too ceased selling Sony products.

    Supersonic began selling Sony products in January 1976, pursuant to a dealership agreement signed in December 1975. Supersonic,

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    which was located in New York, quickly began selling large volumes of Sony products at discounted prices to other retailers in Florida, Georgia, Texas, and Philadelphia. In its first year under the contract Supersonic's purchases from Sonam amounted to more than $3 million. While Sonam customers complained about transshipping generally, none of their complaints mentioned Supersonic specifically. 5

  2. Sonam's Cooperative Advertising Program and the "Computer Cast" Frauds

    In order to encourage its dealers to run local advertising of Sony products, Sonam maintained a "cooperative advertising" program. Under this program Sonam would in effect pay the bulk of the cost of the local advertising by granting to the advertising dealer a credit for 75% of the cost, up to a maximum of 4% of the dealer's purchases from Sonam for the year.

    In April 1977, Sonam began an investigation into the cooperative advertising claims of several New York area Sony dealers who were known to be transshippers. The investigation was ordered by Sonam president Schein on the premise that a dealer who (a) shipped out of his own area, and (b) sold chiefly to other retailers, had no real need to run local advertising in consumer-oriented media. Schein testified as follows:

    I seem to recall that there was a meeting at which we were talking about coop(erative) advertising and that we were spending literally tens of millions of dollars a year on coop(erative) advertising and there may have arisen the subject of transshippers and the idea that a transshipper buys a product in one place and sells it in another place and that the question came up that if he did not sell his product where he purchased it then how could he be taking advertising for the product where he purchased it and there I may have said ... "If that's the case, send in our auditors to find out whether these people were indeed advertising and if they were not advertising and they were therefore charging us for something which never existed, then we should seek to get our money back because otherwise we're being cheated, being defrauded."

    (Tr. 890.) Though the initial focus had been on transshippers, as those least in need of local advertising, Schein...

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