Ad-Vantage Telephone Directory Consultants, Inc. v. GTE Directories Corp.

• Decision Date: 27 August 1987
• Docket Number: AD-VANTAGE,No. 85-3970,85-3970
• Citation: 849 F.2d 1336
• Parties: , 1987-2 Trade Cases 67,683 TELEPHONE DIRECTORY CONSULTANTS, INC., Plaintiff-Appellee, Cross- Appellant, v. GTE DIRECTORIES CORPORATION, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1336

849 F.2d 1336

56 USLW 2161, 1987-2 Trade Cases 67,683

AD-VANTAGE TELEPHONE DIRECTORY CONSULTANTS, INC. Plaintiff-Appellee, Cross- Appellant, v. GTE DIRECTORIES CORPORATION, Defendant-Appellant, Cross-Appellee.

No. 85-3970.

United States Court of Appeals Eleventh Circuit.

Aug. 27, 1987.

As Amended Sept. 4, 1987.

James J. Kenny, Kenny, Nachwalter & Seymour, Miami, Fla., for defendant-appellant, cross-appellee.

Jawdet I. Rubaii, Atty., Clearwater, Fla., John R. Ferguson, Swidler & Berlin, Washington, D.C., for plaintiff-appellee, cross-appellant.

Appeals from the United States District Court for the Middle District of Florida.

Before HILL and HATCHETT, Circuit Judges, and HENDERSON, Senior Circuit Judge.

HILL, Circuit Judge:

This case is another poignant illustration of the fact that when business relationships turn sour, the ailing party is apt to turn to the Sherman Act for relief.

THE FACTS

Appellant, GTE Directories Corp., (GTEDC) is a wholly owned subsidiary of the GTE Corporation. GTEDC enters into contracts with telephone operating companies, including those companies owned by GTE, to publish the telephone company's directory. This lawsuit concerns the directories published by virtue of GTEDC's lawful contract to be the official publisher of the General Telephone Company of Florida's directories for Tampa, Clearwater and St. Petersburg, Florida. GTEDC sells advertising space in these directories; this advertising space is the familiar "yellow pages," containing advertising of businesses with products and services to sell in the community covered by each particular directory.

According to the uncontradicted testimony of John D. O'Neill, former vice president of GTEDC, prior to 1975 Yellow Pages advertising had been coordinated by American Telephone & Telegraph Company (ATT). In May of 1975 ATT, decided to abandon this role, and their coordinating efforts were taken on by the newly formed National Yellow Pages Service Association (NYPSA), which was founded as a self-regulating organization of the publishers of telephone directories. One of the first issues which the NYPSA tackled was the coordination of national advertising. Because each publisher dealt with directories published in specific communities, a national company wishing to place advertisements in many different directories from many different publishers. To ameliorate the logistical problems this situation caused, the NYPSA created the position of Authorized Selling Representative (ASR). According to the NYPSA bylaws and guidelines, an ASR was authorized to sell advertising to any national advertiser on behalf of any publisher within NYPSA. Thus, a national advertiser, such as Greyhound Bus Lines, could purchase an advertisement in the directory of every major metropolitan area in the United States and receive only one bill from the ASR with whom it was dealing. It is the responsibility of the ASR to coordinate the advertising, i.e., to contact each publisher about placing an ad. The publisher pays a 25% commission to the ASR for each advertisement placed in its directory.

According to the guidelines published by NYPSA, in order to qualify as "national yellow pages advertising," an advertising package must involve two or more publishers, and be designed to place ads in 20 or more directories in at least three states, with 30% of the advertising revenue generated in states outside the primary state. However, the guidelines go on to say, "this minimum standard does not preclude any member [publisher] from accepting as a yellow pages service ad any advertising program having fewer publishers, fewer directories, or fewer states, than the minimum standard."

The guidelines provide that each publisher will recognize an ASR's national sales, and will pay a commission on those sales. Under the NYPSA guidelines, the publisher in whose directory a national ad is placed bills the ASR for the advertising space, and the ASR is ultimately responsible for payment. The ASR collects from its advertiser clients. Each publisher has the right not to deal with an ASR who fails to pay its bills promptly, or otherwise cannot establish itself as a good credit risk. Many of the publishers of telephone directories are themselves qualified ASR's. At the time the events involved in this litigation took place, GTEDC had a separate department qualified as an ASR for national yellow pages advertising.

Mr. Joel Blumberg is the central figure in this litigation. He was a sales person for GTEDC until 1975 when he started his own business as a "yellow pages consultant" in the Tampa Bay area. In 1979, after NYPSA authorized nonpublisher ASR's to sell national yellow pages advertising, Blumberg's company, Ad-Vantage Telephone Directory Consultants, Inc. ("Ad-Vantage") became an ASR. ¹

Once in business as an ASR, Mr. Blumberg decided to "discount" yellow pages advertising. He accomplished this by charging his clients less than the publisher's established rate for a yellow pages advertisement. However, Ad-Vantage was still required to pay the publisher full price for the ad. Presumably, the difference between what Ad-Vantage had to pay a publisher and the amount paid by its clients to Ad-Vantage came out of Ad-Vantage's commissions.

GTEDC was apparently concerned about discounting, allegedly because ASR's who failed to charge their clients the authorized rate for yellow pages advertising seemed unable to pay their publisher's bills on time and also provide "full and comprehensive service" to their clients. This concern was expressed in the first issue of "NYPSA News" a newsletter published by GTEDC in May of 1982.

Evidently one of the "discounting ASR's" who did have some problems paying its bills was Mr. Blumberg's company, Ad-Vantage Inc. Mr. Blumberg's own testimony indicated that, at least in the early part of 1982, the company was having to finance some of its clients' accounts by paying the publishers before it received payment from its advertisers.

According to its version of the facts, GTEDC suffered chronic collection problems with Ad-Vantage over a period of two years. The extent of Mr. Blumberg's failure to keep Ad-Vantage's account with GTEDC "current" was hotly disputed at trial. However, it was undisputed that several checks sent to GTEDC by Ad-Vantage had bounced. After extensive contacts with Mr. Blumberg regarding Ad-Vantage's alleged indebtedness to GTEDC, a senior attorney in charge of collections at GTEDC sent a letter directly to the advertisers for whom Ad-Vantage had placed advertisements in the GTEDC directories. The letters, dated May 6, 1982, explained that certain difficulties had arisen between GTEDC and Ad-Vantage; that GTEDC would bill each advertiser directly for its advertising submitted through Ad-Vantage; and that future advertising orders submitted by Ad-Vantage must be accompanied by advance payment, or a guarantee of payment by the advertiser.

Mr. Blumberg was advised of this direct mailing by letter dated May 10, 1982. This letter advised Mr. Blumberg that according to GTEDC's records, his company still owed GTEDC $38,424.06, and that another $122,335 would be due promptly. The letter informed Mr. Blumberg that "when you are able to bring your account to a current status with GTE Directories Corp., we will once again be willing to accept your orders in the normal course of business."

Ad-Vantage claimed that as a result of GTEDC's direct contact with its clients, it lost several major accounts, and ultimately went out of business (to be immediately reborn under the name of National Yellow Pages Directories Services). ² Accordingly, Ad-Vantage sued GTEDC in federal district court, claiming, inter alia, that GTEDC's action violated the Sherman Act and the Florida anti-trust statute, and constituted breach of contract, and tortious interference with business relations under Florida law. GTEDC counter-claimed for $208,000 which it claimed Ad-Vantage still owed on past due accounts.

The case went to trial before a jury, and the jury returned a verdict in favor of the plaintiff, Ad-Vantage, but only on the anti-trust claims brought under the Florida Anti-trust Act, and the tortious interference with business relations claim. GTEDC prevailed on its counter-claim. The jury awarded Ad-Vantage $1.5 million in compensatory damages on the Florida anti-trust claim, and $500,000 in punitive damages on the interference with business relations claim. The antitrust award was trebled, pursuant to Florida law, for a total award of $4,500,000. The court then struck the $500,000 punitive damage claim as duplicative in light of the punitive nature of the treble damages awarded on the antitrust claim.

On appeal, GTEDC claims that the district court erred in not directing a verdict or entering judgment notwithstanding the verdict on the monopolization claims, on grounds that Ad-Vantage failed to offer evidence of a relevant market; that the district court should have directed a verdict or granted J.N.O.V. on the business tort claim because GTEDC's actions were justified under Florida law; that the district court erroneously instructed the jury as to Florida law on tortious interference with business relations; and that a directed verdict or J.N.O.V. should have been entered for GTEDC because Ad-Vantage's evidence on the issue of damages was insufficient. Ad-Vantage cross-appeals, claiming that the district court erred by not adding the $500,000 in punitive damages to the treble damages awarded on the anti-trust claim. It also argues that should this court reverse any part of the verdict in favor of Ad-Vantage, it must also reverse the judgment for GTEDC.

I. THE ANTI-TRUST CLAIMS

We turn first to GTEDC's arguments regarding the district court's failure to direct a verdict on Ad-Vantage's anti-trust claims. The crux of its argument is that Ad-Vantage failed to prove a relevant market within which a jury could correctly evaluate the...