Cascade Cabinet Co. v. Western Cabinet & Millwork Inc., 82-3262

• Decision Date: 05 July 1983
• Docket Number: No. 82-3262,82-3262
• Parties: 1983-2 Trade Cases 65,482 CASCADE CABINET CO., Plaintiff-Appellant, v. WESTERN CABINET & MILLWORK INC., Milton Skutle & Jane Doe Skutle, American Prefinish Corp. and Donald McDonald & Jane Doe McDonald, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1366

710 F.2d 1366

1983-2 Trade Cases 65,482

CASCADE CABINET CO., Plaintiff-Appellant, v. WESTERN CABINET & MILLWORK INC., Milton Skutle & Jane Doe

Skutle, American Prefinish Corp. and Donald

McDonald & Jane Doe McDonald,

Defendants-Appellees.

No. 82-3262.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 8, 1983.

Decided July 5, 1983.

James D. Nelson, Seattle, Wash., for plaintiff-appellant.

Terrence C. Brown, Seattle, Wash., for defendants-appellees.

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

Before WALLACE, ANDERSON, and SCHROEDER, Circuit Judges.

WALLACE, Circuit Judge:

Cascade Cabinet Company (Cascade) appeals from a summary judgment. The district court held that Cascade had failed, as a matter of law, to establish a violation of either section 1 or section 2 of the Sherman Act. 15 U.S.C. Secs. 1, 2. We affirm.

I

Viewing the evidence in the light most favorable to Cascade, we accept as true the following version of the facts. Timberland Industries, Inc. (Timberland) ¹ controls a substantial part of the market for modular kitchen and vanity cabinets in western Washington. During a period of remarkable success in the late 1970s, Timberland outgrew its cabinet manufacturing plant in Kirkland, Washington and constructed a larger plant in Woodinville, Washington. Timberland vacated the Kirkland plant, and American Prefinish Corporation (American), a manufacturer of interior millwork and lumber, leased the premises. The president of American, McDonald, was formerly the chairman of the board and president of Timberland. McDonald's brother is currently president of Timberland. Because the new Woodinville plant was constructed with state of the art technology, Timberland left most of the leasehold improvements in the Kirkland plant intact.

Cascade, a newly formed producer of modular kitchen cabinets, obtained its first order in late 1980, a $330,000 contract which had to be completed in February 1981. Anxious to find a site from which to conduct business, Holan, president of Cascade, visited the Kirkland plant and spoke with McDonald about subleasing the space. The facilities were ideally suited for Cascade's needs because they already contained many improvements required for the manufacture of modular cabinets, such as dust collecting systems, paint booths, fire sprinkling equipment, loading docks, and special wiring.

Negotiations followed, and Holan and McDonald reached an oral agreement upon all material terms. Before they reduced the agreement to writing, however, Timberland intervened. Skutle, president of the Western Cabinet and Millwork division of Timberland, telephoned McDonald and advised him that Timberland would prefer that the abandoned plant not be sublet to Cascade and that Timberland might be interested in leasing the premises again. After the telephone conversation, McDonald told Holan that American would not lease the facilities to Cascade. Holan objected, but to no avail. Cascade alleges that the refusal to lease the premises was motivated by American's desire to maintain the goodwill of Timberland, its largest customer. Timberland did not lease the plant and Cascade alleges Timberland never intended to lease it. Cascade has produced some evidence tending to show that Timberland pressured American not to sublease to Cascade because Timberland did not want a new competitor to gain such an advantageous lease.

Cascade obtained an alternate site, but was unable to take possession until late January and incurred substantial expenses in installing improvements. It fulfilled its order on time, but only by subcontracting out parts of the project at a higher rate than it would have cost had Cascade handled those portions of the project itself. Cascade claims that American's refusal to lease the Kirkland facilities has damaged it in the amount of $500,000.

Cascade filed this action in federal district court against Timberland, Skutle and his wife, American, and McDonald and his wife. It alleged a concerted refusal to deal and attempted monopolization in violation of sections 1 and 2 of the Sherman Act. Cascade also alleged pendent state claims for violation of Washington antitrust, contract, and tort law. A summary judgment of dismissal as to all claims was entered in favor of the defendants, and Cascade filed a timely notice of appeal. Cascade appeals only the federal antitrust claims. Our jurisdiction rests on 28 U.S.C. Sec. 1291.

II

We must determine whether the conduct by Timberland and American in denying Cascade an advantageous lease violated the Sherman Act. Summary judgment is appropriate when the moving party demonstrates that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. E.g., Mutual Fund Investors, Inc. v. Putnam Management Co., 553 F.2d 620, 624 (9th Cir.1977) (Mutual Fund Investors). We must view the evidence in the light most favorable to the party opposing the motion for summary judgment. Klamath-Lake Pharmaceutical Association v. Klamath Medical Service Bureau 01 F.2d 1276, 1281 (9th Cir.1983) (Klamath-Lake ).

III

We begin by analyzing Cascade's claim under section 1 of the Sherman Act. Section 1, which prohibits concerted activity "in restraint of trade," has been analyzed under both the "rule of reason" and the "per se" rule. The rule of reason, "[a]s its name suggests, ... requires the factfinder to decide whether under all the circumstances of the case the restrictive practice imposes an unreasonable restraint on competition." Arizona v. Maricopa County Medical Society, 457 U.S. 332, 343, 102 S.Ct. 2466, 2472, 73 L.Ed.2d 48 (1982) (footnote omitted). The per se rule's conclusive presumption of illegality is not applied to a challenged practice until "experience with [the] particular kind of restraint enables the Court to predict with confidence that the rule of reason will condemn it." Id. at 344, 102 S.Ct. at 2473. The Supreme Court described the per se violations of the Sherman Act in Northern Pacific Railway v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958), as "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Cascade challenges the defendants' conduct under both the rule of reason and the per se rule.

A.

Thus far, the Supreme Court and this court have applied the per se rule to four categories of restraints: horizontal and vertical price fixing, horizontal market division, group boycotts or concerted refusals to deal, and tying arrangements. A.H. Cox & Co. v. Star Machinery Co., 653 F.2d 1302, 1305 (9th Cir.1981); 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). ² Cascade argues that the defendants' conduct constitutes a concerted refusal to deal.

American did refuse to deal with Cascade in the sense that it refused to lease Cascade the Kirkland facilities, and we may assume, for purposes of this appeal, that a concert of action between Timberland and American caused this refusal to deal. Cascade and Timberland agree that they are horizontal competitors; Cascade concedes that American is not a horizontal competitor of either Timberland or Cascade. Concerted activity between Timberland and American thus does not fit within the limits of a conventional boycott:

In a conventional boycott, traders at one level (let us say wholesalers) seek to protect themselves from competition from nongroup members who are competing or who are seeking to compete at that level. They do this by taking concerted action aimed at depriving the excluded wholesalers of some trade relationship which they would need to compete effectively at the wholesale level.

L. Sullivan, Handbook of the Law of Antitrust 230 (1977).

In prior cases, we limited the per se rule against concerted refusals to deal to concerted activity between two or more horizontal competitors and refused to apply the rule to concerted activity between vertically related companies, even though one of them may have been the plaintiff's horizontal competitor. For example, in Gough v. Rossmoor Corp. a single horizontal competitor (Crestmark) of the plaintiff (Rosen) in the market for selling carpets to residents of Rossmoor Leisure World, a housing development for retired adults, conspired with the publisher of the Leisure World News, a community newspaper, to prevent Rosen from advertising in the paper. Although the plan was clearly intended to harm Crestmark's competitor, we analyzed the practice as follows:

Such concert of action may suffice to create a conspiracy but it cannot suffice to constitute such a concerted refusal to deal as has so far been held to be per se unreasonable. In all cases so far holding such restraints to be per se unreasonable, there has been some horizontal concert of action taken against the victims of the restraint. In Mutual Fund Investors v. Putnam Management Co., supra, this court rejected the contention that the refusal to deal there under fire constituted a per se illegal group boycott, stating "At issue is an alleged conspiracy among vertically integrated organizations and agreements among them are not per se illegal." 553 F.2d at 626.

585 F.2d at 387 (footnote omitted).

Not surprisingly, defendants rely on Gough v. Rossmoor Corp. Although we have stated that vertical concert of activity is not per se unreasonable, some recent cases have carved out a limited exception to this rule. Recently, we stated that "[t]o establish a per se violation of section 1 [for refusal to deal], a plaintiff generally must show that the defendant engaged in concerted anticompetitive activity with others at the same level of market organization."...