Westman Com'n Co. v. Hobart Intern., Inc.

• Decision Date: 25 June 1986
• Docket Number: Nos. 83-1678,83-1801,s. 83-1678
• Citation: 796 F.2d 1216
• Parties: , 1986-1 Trade Cases 67,152 WESTMAN COMMISSION COMPANY, Plaintiff-Appellee, Cross-Appellant, v. HOBART INTERNATIONAL, INC., Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1216

796 F.2d 1216

55 USLW 2037, 1986-1 Trade Cases 67,152

WESTMAN COMMISSION COMPANY, Plaintiff-Appellee, Cross-Appellant, v. HOBART INTERNATIONAL, INC., Defendant-Appellant, Cross-Appellee.

Nos. 83-1678, 83-1801.

United States Court of Appeals, Tenth Circuit.

June 25, 1986.

George F. Karch, Jr., of Thompson, Hine & Flory, Cleveland, Ohio (Thomas J. Collin, of Thompson, Hine & Flory, Cleveland, Ohio, James E. Hautzinger and Robert E. Youle, of Sherman & Howard, Denver, Colo., with him on briefs), for defendant-appellant.

Kenneth L. Starr, of Holmes & Starr, Denver, Colo. (Sidney W. DeLong, of Holmes & Starr, Denver, Colo., and Michael J. Abramovitz, of Drexler, Wald & Abramovitz, Denver, Colo., with him on briefs), for plaintiff-appellee.

Before McKAY and SETH, Circuit Judges, and RUSSELL, District Judge. ^*

McKAY, Circuit Judge.

This is an antitrust case based on the refusal of a manufacturer to grant a distributorship. The defendant, Hobart International Corporation, manufactures one of approximately fifty-three separate lines of kitchen equipment sold by both the plaintiff, Westman Commission Company, and Nobel, Inc., another kitchen equipment distributor in the Denver area. The trial court described Hobart's products as the "Cadillac" of the food service industry. Westman Commission Co. v. Hobart Corp., 461 F.Supp. 627, 628 (D.Colo.1978) ("Westman I"). Its products are of such high quality and so reasonably priced that an expert in food facilities design testified at trial that "there is a noticeable absence of acceptable substitutes at a price comparable with that of Hobart products." Id.

In 1978, Hobart sold commercial kitchen equipment through its food service dealer division to approximately 540 independent distributors located throughout the country. Hobart distributors were a part of a group of approximately 1500 to 1600 restaurant equipment distributors in the United States. Hobart distributors were able to purchase Hobart products at factory prices and were eligible for factory rebates of up to eight percent of their Hobart business at the end of the year. In January 1976, Hobart had eight distributors in the highly competitive, Denver-area market. The most successful of those distributors was Nobel, which accounted for forty to fifty percent of the dollar volume of Hobart sales in the Denver-area market between 1973 and 1977. In addition to selling Hobart products, Nobel sold many other lines of kitchen equipment and all other commodities necessary to supply customers in the institutional food service or restaurant business.

From 1952 to 1973, Westman was in the wholesale grocery business--supplying frozen foods, dry groceries, paper products, and janitorial supplies to retail grocers, restaurants, hospitals, schools, and other buyers. In 1973 Westman entered the restaurant equipment supply business by purchasing the assets of the WE-4 Division of Wilscam Enterprises, Inc. At the time Westman purchased its WE-4 Division, Wilscam had an informal arrangement with Hobart to distribute Hobart products. For approximately fourteen months after Westman acquired the WE-4 Division, Hobart continued to make sales to Westman on a casual basis, but failed to offer Westman a formal distributorship agreement. Finally, in July 1974, Hobart informed Westman that it did not intend to offer Westman a distributorship. In January 1976, Hobart reaffirmed that it would not make Westman a Hobart distributor and informed Westman that it would no longer sell to Westman on a casual basis.

Thereafter, Westman brought this private antitrust action against Hobart alleging a violation of section one of the Sherman Act, 15 U.S.C. Sec. 1 (1982). Westman claimed that Hobart had conspired with Nobel to prevent Westman from competing with Nobel in the Denver-area restaurant equipment supply market. There was no allegation that anyone other than Nobel and Hobart participated in the alleged conspiracy, that the alleged conspiracy had as its objective any tying arrangement, or that it was entered into to fix or stabilize prices. The sole factual basis for this action, as the trial court found on an adequate record, was that Nobel, fearing competition from Westman, urged Hobart to deny Westman a distributorship. The record shows that Nobel indicated to Hobart that, if Hobart granted Westman a distributorship, it would "jeopardize" Hobart's business relationship with Nobel. Westman I, 461 F.Supp. at 635. Although Hobart offered other reasons for its refusal to grant Westman a distributorship, the trial court dismissed those reasons as "pretextual." Id. at 636. Thus, it is clear from the record that Hobart, responding to Nobel's veiled threat, denied Westman a distributorship. The trial court determined that Hobart's refusal to deal constituted a per se violation of section one of the Sherman Act. It further concluded that, even under a rule-of-reason analysis, Hobart's refusal to deal would not withstand antitrust scrutiny. Id.

I.

As we approach this case, we must bear in mind that the purpose of the antitrust laws is the promotion of consumer welfare. Indeed, the Supreme Court has called the Sherman Act a " 'consumer welfare prescription.' " NCAA v. Board of Regents of University of Oklahoma, 468 U.S. 85, 107, 104 S.Ct. 2948, 2964, 82 L.Ed.2d 70 (1984) (quoting Reiter v. Sonotone Corp., 442 U.S. 330, 343, 99 S.Ct. 2326, 2333, 60 L.Ed.2d 931 (1979). The Court has also explained that "an antitrust policy divorced from market considerations would lack any objective benchmarks." Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 53 n. 21, 97 S.Ct. 2549, 2559 n. 21, 53 L.Ed.2d 568 (1977). We adhere to the view that the antitrust laws should not restrict the autonomy of independent businessmen when their activities have no adverse impact on the price, quality, and quantity of goods and services offered to the consumer. See id. Thus, we consider Hobart's refusal to deal in light of its effect on consumers, not on competitors. This approach is particularly important in cases involving vertical relationships, since such relationships often foster procompetitive business agreements. Accordingly, if the antitrust laws applicable to vertical dealings are uncertain or inefficient, they are likely to have a chilling effect on beneficial, procompetitive market interaction.

II.

The trial court's decision in this case proceeds from its definition of the relevant market as "one-stop shopping." This term refers to a method of marketing in which a distributor carries multiple lines of the same product as well as lines of complementary products, so as to provide all the needs of a food service operation. The trial court explained:

There is a recognized distinct market wherein a purveyor can supply a customer in the institutional food service or restaurant business with all requisite equipment and supplies. Commonly referred to as "one-stop shopping" or "full-line distribution," customers obtain convenience, cost savings and better service from a "one-stop shopping" distributor than from houses specializing in selected products.

Westman I, 461 F.Supp. at 628. Having defined the relevant market as "one-stop shopping," the trial court determined that Hobart's refusal to grant Westman a distributorship excluded Westman from the market and therefore constituted a per se violation of the Sherman Act. We recognize that market definition is a question of fact, Telex Corp. v. International Business Machines Corp., 510 F.2d 894, 915 (10th Cir.), cert. dismissed, 423 U.S. 802, 96 S.Ct. 8, 46 L.Ed.2d 244 (1975), and we thus review the district court's definition of relevant market under the "clearly erroneous" standard. Monfort of Colorado, Inc. v. Cargill, Inc., 761 F.2d 570, 579 (10th Cir.1985).

The trial court concluded that Westman was excluded from the market even though it also found the market for Hobart products was highly competitive. Westman I, 461 F.Supp. at 634. Moreover, the trial court found that Westman continued to make equipment sales after Hobart refused to grant it a distributorship. Westman Commission Co. v. Hobart Corp., 541 F.Supp. 307, 315 (D.Colo.1982) ("Westman II"). Indeed, Westman concedes in its brief that it "competes with Nobel in the sale of a broad spectrum of kitchen equipment and supplies," though it argues that this does not show effective competition in the "one-stop shopping" market. Appellee's Brief at 9.

In defining the relevant market as "one-stop shopping," the trial court apparently focused on the system of product distribution rather than the market facing the consumer of restaurant equipment. The trial court's focus justified the conclusion that "one-stop distribution" is an effective way to compete in the market. But the fact that "one-stop distribution" is an effective or even superior way to compete does not mean that the relevant market is limited to those who use that method of competition. "Any definition of line of commerce which ignores the buyers and focuses on what the sellers do, or theoretically can do, is not meaningful." United States v. Bethlehem Steel Corp., 168 F.Supp. 576, 592 (S.D.N.Y.1958); see also El Cid, Ltd. v. New Jersey Zinc Co., 551 F.Supp. 626, 633 (S.D.N.Y.1982). The fact that a distributor is able to satisfy all of a customer's needs at one location does not mean that it is free from competition from other types of distributors.

Defining the relevant market first requires a determination of the product market. This inquiry necessitates an examination of which commodities are "reasonably interchangeable by consumers for the same purposes." United States v. E.I. duPont de Nemours & Co., 351 U.S. 377, 395, 76 S.Ct. 994, 1007, 100 L.Ed. 1264 (1956). It is clear from both the findings of the trial court and the concessions of Westman in its brief that there is vigorous competition for the restaurant equipment supply dollar in the Denver area. Although Hobart is...