McGahee v. Northern Propane Gas Co.

• Citation: 858 F.2d 1487
• Decision Date: 27 October 1988
• Docket Number: No. 87-8379,87-8379
• Parties: , 1988-2 Trade Cases 68,296 H. Floyd McGAHEE, Plaintiff-Appellant, v. NORTHERN PROPANE GAS COMPANY, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1487

858 F.2d 1487

57 USLW 2281, 1988-2 Trade Cases 68,296

H. Floyd McGAHEE, Plaintiff-Appellant, v. NORTHERN PROPANE GAS COMPANY, Defendant-Appellee.

No. 87-8379.

United States Court of Appeals,

Eleventh Circuit.

Oct. 27, 1988.

James L. Paul, Russell R. Grosse, Gambrell, Clarke, Anderson & Stolz, Atlanta, Ga., Frank C. Vann, Camilla, Ga., for plaintiff-appellant.

Emmet J. Bondurant, Jane F. Vehko, Bondurant, Mixson & Elmore, Atlanta, Ga., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before HATCHETT and EDMONDSON, Circuit Judges, and LYNNE ^*, District Judge.

LYNNE, Senior District Judge:

Plaintiff-appellant H. Floyd McGahee (McGahee) brought this antitrust action under Section 2 of the Sherman Act, 15 U.S.C. Sec. 2, and under Sec. 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. Sec. 13(a), against defendant-appellee Northern Propane Gas Company (Northern Propane). The district court granted Northern Propane's motion for summary judgment and entered judgment against McGahee. McGahee v. Northern Propane Gas Co., 658 F.Supp. 189 (N.D.Ga.1987) (Shoob, J.). We reverse.

I. FACTS

McGahee and Northern Propane are retail distributors of propane, a fuel used for heating. Retail distributors primarily have two types of customers: (1) residential and (2) commercial. Generally, distributors sell propane to commercial users at a lower price. Because propane is a fungible good, price is of prime importance in its unregulated market.

At the time relevant to this action, Northern Propane operated 180 retail distribution outlets in twenty-five states. One of these retail distribution outlets was based in Camilla, Georgia. Northern Propane produces and buys propane in western states and comingles the propane with other companies' propane to transport it by pipeline to Georgia. The Northern Propane district office in Camilla then takes delivery of the propane at the pipeline terminal.

In a March 1982 internal report, Northern Propane described the propane market in the Camilla district (approximately Mitchell and Baker Counties). Northern Propane estimated it had sixty percent of the total propane market within the district. Northern Propane estimated Petrolane had twenty percent of the market, but regarded Petrolane as competition only for large volume commercial accounts. Northern Propane also estimated that five competitors, working within the edges of the district, split the remaining twenty percent. Because transportation costs restrict economical delivery of propane to a twenty-five to thirty mile radius from the storage tanks and because these five competitors were based outside of the Camilla district, these competitors were only competitive with Northern Propane on the edge of the Camilla district to which they were closest. In addition, Northern Propane stated that, of other possible fuels, only "free" wood posed a competitive threat to propane in the Camilla district and that conversion to wood had stabilized. ¹

When Northern Propane bought the retail distribution outlet in Camilla, Floyd McGahee was its district manager. McGahee had become a fixture in the Camilla area, having worked at the same propane outlet for approximately thirty years. In June 1981, Northern Propane demoted McGahee to a salesperson position because, according to Northern Propane, he failed to keep adequate records, to keep the accounts receivable current, and to follow company directives. McGahee resigned from Northern Propane on October 9, 1981, under contentious circumstances. ²

After resigning from Northern Propane, McGahee obtained an $800,000 Small Business Administration (SBA) loan to finance his April 1982 entry into the propane business in the Camilla area. By February 1982, Northern Propane had obtained a copy of McGahee's SBA loan documents and other documents related to his financial position. Before McGahee's distributorship opened, a Northern Propane internal report stated that its new "district manager has taken the offensive and will fight the former employee for the market." At the end of March 1982, Northern Propane lowered its residential prices five cents per gallon and its commercial prices four cents per gallon. ³

In late April 1982, McGahee opened for business. Not only did McGahee solicit Northern Propane's customers, he also hired three of Northern Propane's drivers and repairmen. McGahee's market share went from zero percent in 1981 to twenty-three percent in 1983, while Northern Propane's market share dropped from sixty or sixty-five percent in 1981 to thirty-five percent in 1983. ⁴ McGahee's success in acquiring a substantial share of the market was due both to his personal familiarity with the local community and to his willingness to compete with Northern Propane's prices. The direct head-to-head competition led to hard feelings, with Northern Propane's new district manager in Camilla referring to McGahee in internal documents as "Floyd The S.O.B." and setting "[c]ontribute to Floyd's financial problems" as a district goal for 1983.

During the price war, Northern Propane sold propane at prices below its average total cost. McGahee also contends that Northern Propane's own documents indicate that in some months Northern Propane sold propane to commercial customers at prices below average variable cost and cited documents that support this contention. ⁵ McGahee also contends that Northern Propane's own documents indicate that Northern Propane sold propane in the Camilla district at lower prices than in other districts and cites documents that support this contention. ⁶ Furthermore, Northern Propane furnished propane tanks in the Camilla district rent free while charging rent in other districts, realizing that McGahee would be limited in the number of tanks he could offer rent free. ⁷

II. STANDARD OF REVIEW

Our review of the district court's grant of summary judgment is plenary and is to be conducted utilizing the same legal standards as those imposed upon the district court. Mercantile Bank & Trust v. Fidelity & Deposit Co., 750 F.2d 838, 841 (11th Cir.1985). Summary judgment is appropriate only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

Three recent Supreme Court cases vacating appellate reversals of district court orders granting summary judgment illulminate the appropriate role of summary procedure. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A common theme found in these cases is that

[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed "to secure the just, speedy and inexpensive determination of every action." Fed.R.Civ.P. 1.

Celotex, 106 S.Ct. at 2555. In Matsushita, the Supreme Court made clear that summary judgment may be especially appropriate in an antitrust case because of the chill antitrust litigation can have on legitimate price competition. 106 S.Ct. at 1360. For this reason, when opposing a motion for summary judgment, an antitrust plaintiff must present evidence that tends, when interpreted in a light most favorable to plaintiff, to exclude the possibility that defendant's conduct was as consistent with permissible competition as with illegal conduct. Id. at 1357. ⁸

III. THE TEST FOR PREDATORY PRICING

A plaintiff must show two elements to establish an attempted monopolization claim under Section 2 of the Sherman Act: (1) the specific intent on the part of the defendant to achieve a monopoly and (2) a dangerous probability the defendant would succeed. Swift & Co. v. United States, 196 U.S. 375, 396, 25 S.Ct. 276, 279, 49 L.Ed. 518 (1905); Tiftarea Shopper, Inc. v. Georgia Shopper, Inc., 786 F.2d 1115, 1118 (11th Cir.1986). The first element can be satisfied by proof of predatory pricing, Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986), which is what McGahee has alleged in this case. A problem arises, however, in determining whether a defendant has engaged in predatory pricing.

A plaintiff who is a competing seller such as McGahee must show two elements to establish a Robinson-Patman Act claim: (1) the defendant, in the course of interstate commerce, discriminated in price between purchasers of commodities of like grade and quality and (2) a reasonable possibility that this price difference may harm competition. Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 434-35, 103 S.Ct. 1282, 1288, 75 L.Ed.2d 174 (1983); FTC v. Anheuser-Busch, 363 U.S. 536, 549, 80 S.Ct. 1267, 1274, 4 L.Ed.2d 1385 (1960). Price discrimination, the first element, is merely a price difference. Anheuser-Busch, 363 U.S. at 549, 80 S.Ct. at 1274. Harm to competition, the second element, can be satisfied by proof of predatory pricing. ⁹ Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 87 S.Ct. 1326, 18 L.Ed.2d 406 (1967). Again, the problem is determining whether a defendant has engaged in predatory pricing.

A. The District Court's Test for Predatory Pricing.

In its opinion, the district court discusses the economic theory behind regulating predatory pricing, relying primarily on the work of Professors Areeda and Turner, in its quest for a test for determining when a defendant has engaged in predatory pricing. McGahee, 658 F.Supp. at 192-93. Although the district court discusses the test from International Air Industries v. American Excelsior Co., 517 F.2d 714 (5th Cir.19...