Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc.

• Decision Date: 09 July 1984
• Docket Number: REPLACE-A-CA,No. 83-1074,INC,RENT-A-CA,83-1074
• Parties: 1984-2 Trade Cases 66,097, 15 Fed. R. Evid. Serv. 1956 ADJUSTERS, Plaintiff-Appellant Cross-Appellee, v. AGENCY, Defendant-Appellee Cross-Appellant. WAKELY & ASSOCIATES, INC., Plaintiff-Appellant Cross-Appellee, v. AGENCY, Defendant-Appellee Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 884

735 F.2d 884

1984-2 Trade Cases 66,097, 15 Fed. R. Evid. Serv. 1956

ADJUSTERS REPLACE-A-CAR, INC., Plaintiff-Appellant Cross-Appellee, v. AGENCY RENT-A-CAR, INC., Defendant-Appellee Cross-Appellant.

WAKELY & ASSOCIATES, INC., Plaintiff-Appellant Cross-Appellee, v. AGENCY RENT-A-CAR, INC., Defendant-Appellee Cross-Appellant.

No. 83-1074.

United States Court of Appeals Fifth Circuit.

July 9, 1984.

Rehearing and Rehearing En Banc Denied Aug. 20, 1984.

McFarland & Tondre, Brice A. Tondre, Houston, Tex., Robert R. Biechlin, Jr., San Antonio, Tex., for plaintiffs-appellants cross-appellees.

Terry S. Bickerton, Deborah D. Williamson, A. Michael Ferrill, Cox & Smith, Inc., San Antonio, Tex., William R. Pakalka, Fulbright & Jaworski, Houston, Tex., for defendant-appellee cross-appellant.

Appeals from the United States District Court for the Western District of Texas.

Before JOHNSON, HIGGINBOTHAM, and DAVIS, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

We review the granting of judgment n.o.v. to the defendant in this private antitrust suit brought by Adjusters Replace-A-Car and Wakely & Associates, two insurance replacement car rental firms, against their rival, Agency Rent-A-Car, Inc. The principal accusation is that Agency employed predatory pricing in the San Antonio and Austin markets as part of an attempt to monopolize in violation of section two of the Sherman Act. Adjusters also charges that Agency hired away an essential employee in an attempt to monopolize the Corpus Christi market. Because we agree with the district court that plaintiffs failed to present a jury question regarding any of these claims, we affirm the judgment for Agency.

I

Adjusters, Wakely, and Agency all operated in a segment of the rental car business, providing replacement cars to persons whose cars had been stolen or damaged in an accident. The replacement rental firm deals directly with insurance adjusters, and is able to offer a lower rate than the standard public rental firms because its rentals are often long-term and its operating and advertising costs are less. To the extent that firms specializing in insurance replacement rentals cannot satisfy the demand for such services, the public rental firms will also provide this service, though ordinarily at a higher cost to the insurer. The record indicates that a public rental firm wishing to compete directly in the insurance replacement segment of the market would be able to do so with relative ease.

In September 1973, Adjusters became the first insurance replacement rental firm to enter the San Antonio market. Wakely and Agency entered that market in October 1974, each charging a daily rental of $9.50; Adjusters' rate was then $8.50. Dissatisfied with its unprofitably small portion of the insurance replacement rental market in San Antonio, Agency cut its rental rate there to $8.00 per day in March 1975. When this tactic failed to increase its market share significantly, Agency in November 1975 reduced its rental rate to $7.00 per day.

At $7.00, Agency began to make substantial inroads into the San Antonio market. After four months it began increasing its price, first to $7.50, then to $8.00, and by July 1976 to $8.50. Agency admits that in San Antonio it suffered a net operating loss during the sixteen month period that its rental rate was set at $8.00 and below, and Adjusters and Wakely charge that Agency continued losing money until it raised its rental rate to $9.50 in February 1977.

In the Austin market, which Adjusters entered in December 1974 and Agency entered in November 1975, the $7.00 rental rate again proved a powerful tool with which Agency carved out a substantial share of the market. Agency's pricing in Austin evidently paralleled its pricing in San Antonio, and it again appears that Agency suffered net operating losses while offering the cheaper rate.

In December 1977, Adjusters left the Austin market and was replaced by Wakely, which charged first $10.00 and then $11.00; Agency was apparently charging $10.45 when Wakely entered that market. Agency cut its Austin rental rate to $9.00 in January 1979. Wakely initially responded with an $8.50 rate, but closed its Austin office after April 1979.

Adjusters opened its Corpus Christi office in January 1975, and held the great percentage of that market by the time Agency opened there in May 1976. Agency came to prominence, however, after it hired away Adjusters' office manager, Patty Manges, who brought many of Adjusters' clients with her to Agency. So successful was Agency that Adjusters left Corpus Christi by March 1977.

Adjusters went out of business in March 1978, closing its San Antonio office. Adjusters' Dallas office, not involved in this litigation, had closed in July 1977. Wakely continues to operate in San Antonio. Both companies argue that their business reversals were due to anticompetitive conduct by Agency, which was allegedly attempting to monopolize the insurance replacement rental market in San Antonio, Austin, and Corpus Christi.

II

Section 2 of the Sherman Act, 15 U.S.C. Sec. 2, makes it unlawful for any person to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states." A party injured by such anticompetitive conduct may sue to recover treble damages under section 4 of the Clayton Act, 15 U.S.C. Sec. 15. Here the claim is one of attempted monopolization by Agency, and the burden on the plaintiffs is to prove the elements of this offense and a causal relationship between the Agency's anticompetitive conduct and the plaintiffs' proven damages. J.T. Gibbons, Inc. v. Crawford Fitting Co., 704 F.2d 787, 795 (5th Cir.1983).

The elements of an attempted monopolization under Sec. 2 of the Sherman Act are: "(1) specific intent to accomplish the illegal result; and (2) a dangerous probability that the attempt will be successful." Spectrofuge Corp. v. Beckman Instruments, Inc., 575 F.2d 256, 276 (5th Cir.1978), cert. denied, 440 U.S. 939, 99 S.Ct. 1289, 59 L.Ed.2d 499 (1979). The intent must be to do more than compete vigorously; vigorous competition is precisely what the antitrust laws are designed to foster. Thus, "[a] statement of intent to compete ... even if perceived as a threat is not unlawful. Such a manifestation of intent to triumph in the competitive market, in the absence of unfair, anticompetitive or predatory conduct, is not enough to establish an antitrust violation." Hayes v. Solomon, 597 F.2d 958, 977 (5th Cir.1979), cert. denied, 444 U.S. 1078, 100 S.Ct. 1028, 62 L.Ed.2d 761 (1980). Rather, the forbidden specific intent is that of acquiring and exercising "the power to fix prices or to exclude competition." United States v. du Pont & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 1005, 100 L.Ed. 1264 (1956); American Tobacco Co. v. United States, 328 U.S. 781, 811, 66 S.Ct. 1125, 1140, 90 L.Ed. 1575 (1946); Spectrofuge, 575 F.2d at 276.

Adjusters and Wakely argue that the jury was entitled to infer that Agency had the requisite intent and was dangerously likely to succeed at monopolizing the insurance rental market in the relevant geographical area from evidence that Agency's pricing and operational strategies drove competitors from the marketplace when market conditions prevented other firms from entering the market to compete with Agency. The specific conduct which plaintiffs allege was anticompetitive is Agency's use of a predatory pricing regimen in San Antonio and Austin, and Agency's deliberate efforts to "steal" Adjusters' Corpus Christi customers by hiring away Adjusters' office manager in that city. Adjusters and Wakely claim that this anticompetitive conduct caused them injury in their trade or business.

Responding to interrogatories, the jury found that Agency had attempted to monopolize the insurance replacement car market in San Antonio and Austin by means of its pricing in 1975 and 1976, in Austin by means of its pricing in 1978 and 1979, and in Corpus Christi by means of hiring Patricia Manges. Total damages, without trebling, were set at $800,000. ¹

Defendants moved for judgment notwithstanding the verdict, and filed a brief supporting the motion. On this basis, the trial judge granted a judgment n.o.v. and dismissed the case. ² Adjusters and Wakely appeal. ³

III

There is obviously a tension inherent in the legal assignment to protect competition but not competitors. Fighting hard but fair, avoiding ruinous competition and avoiding predation are often-used catchwords that fail in their central normative purpose--they do not segregate desired and undesired conduct in the marketplace. As a seeming precursor to the current willingness of courts to be informed by economics, Professors Areeda and Turner lawyer and economist, undertook to suggest measures with content. Their effort was sufficiently successful that the starting point for an analysis of a predatory pricing claim is now their influential article, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697 (1975), in which they analyze a firm's pricing in terms of that firm's average total cost, average variable cost, and marginal cost of production.

Basic economic theory subscribed to by Areeda and Turner teaches that in a perfectly competitive market a small manufacturer's price is dictated by the marketplace, and his production will be at the level where the marginal cost of producing another unit of output exactly equals the price that he will receive for this unit. A manufacturer's costs are divided between fixed costs, which do not vary with the level of production and cannot be avoided even if production shrinks to zero, and variable costs, which do vary with production and roughly equal the cost of the resources necessary to produce additional units of output. Because marginal cost is an economic concept with no exact counterpart in...