903 F.2d 1414 (11th Cir. 1990), 89-8073, Alan's of Atlanta, Inc. v. Minolta Corp.

Docket Nº:89-8073.
Citation:903 F.2d 1414
Party Name:ALAN'S OF ATLANTA, INC., Plaintiff-Appellant, v. MINOLTA CORPORATION, Robert Lathrop, Wolf Camera, Inc., and Charles Wolf, Defendants-Appellees.
Case Date:June 22, 1990
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit

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903 F.2d 1414 (11th Cir. 1990)

ALAN'S OF ATLANTA, INC., Plaintiff-Appellant,

v.

MINOLTA CORPORATION, Robert Lathrop, Wolf Camera, Inc., and

Charles Wolf, Defendants-Appellees.

No. 89-8073.

United States Court of Appeals, Eleventh Circuit

June 22, 1990

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Michael W. Higgins, Higgins & Dubner, Atlanta, Ga., Stephen W. Armstrong, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., John D. Jones, Greene, Buckley, Derieux & Jones, Atlanta, Ga., for plaintiff-appellant.

Neely & Player, Atlanta, Ga., for Minolta and Lathrop.

Jeffrey L. Kessler, Ronald LaRussa, David D. Leitch, Weil, Gotshal & Manges, New York, NY, for defendants-appellees.

David R. Aufdenspring, Powell Goldstein Frazer & Murphy, Atlanta, Ga., for Wolf.

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

Before FAY and COX, Circuit Judges, and ESCHBACH [*], Senior Circuit Judge.

ESCHBACH, Senior Circuit Judge:

This case concerns the propriety of summary judgment in an antitrust action

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brought by a private plaintiff. The action alleges, among other things, violations of sections 2(a), 2(d), 2(e), and 2(f) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. Secs. 13(a), (d), (e), and (f). The court below concluded that summary judgment was appropriate. After reviewing the record we conclude otherwise, and therefore reverse.

I.

Alan's of Atlanta, Inc. ("AA") was an Atlanta-based "specialty" retailer of cameras and related equipment. It had stores in Atlanta and throughout Georgia and Florida. At the start of 1979 AA had a substantial share of the Atlanta market for Minolta-brand camera sales, about 33%, and an overwhelming share of specialty store sales, about 78%. By the end of 1985 AA's fortunes had taken a turn for the worse. Its Atlanta market share of Minolta camera sales had plummeted to about 4%. Its share of specialty store sales suffered a similar fate. During this same period AA witnessed the dramatic rise of a competing specialty camera retailer, Wolf Camera, Inc. Wolf Camera had captured the 29% of the Minolta camera market lost by AA and then some. Its share of that market rose from about 6% to about 41%. Even more dramatic was the rise in its share of specialty camera store sales, which rocketed from about 14% to over 65%. AA's president, Alan Goodelman, could only guess at the cause of Wolf Camera's rise and AA's fall. He surmised that AA's problems were caused by a faulty computer system, or perhaps by a bad management decision to expand in Florida.

In June of 1985 Goodelman was approached by Eugene Grabowski, a former Southeast Region sales manager for Minolta Corporation ("Minolta"). 1 Grabowski brought news that a price discrimination scheme may have led to AA's woes. He told Goodelman that Minolta had market development fund ("MDF") accounts through which benefits were disbursed by either the national director of sales or the regional sales managers. These benefits had been used prior to 1979 for the equal good of all Minolta retailers. In 1979 Robert Lathrop took over as national director of sales, however, and instituted a "key dealer" program in which the MDF benefits were to be channeled disproportionately to "key dealers" in various cities. The MDF accounts were to support a program in which these selected dealers would be given free cameras and camera equipment, free advertising, free promotions, and various other benefits not available to non-key dealers.

Grabowski alleged that the key dealer program was motivated by two rationales. First, Minolta promotions could be cheaper if limited to one retailer with a large-volume capacity. For example, instead of making 100 shipments of 100 cameras to 100 retailers during a promotion, Minolta could make 1 shipment of 10,000 cameras to one retailer, saving distribution costs. Although the program was not designed to put non-key dealers out of business, it was designed to concentrate the market and to create a market leader through whom the promotions could be handled efficiently. Second, the program was designed to create a de facto vertical integration of Minolta with selected retailers, at least in some respects. According to Grabowski, Lathrop believed that after helping a retailer achieve success, he could dictate to the retailer what cameras to sell and at what price.

Key dealers were usually the highest volume dealers within a defined market area. AA was the highest volume dealer in the Atlanta market at the time the key dealer program was instituted, but it was not chosen by Minolta as the Atlanta area key-dealer. Grabowski alleged that Lathrop personally disliked Goodelman, and, in any case, felt that Wolf Camera had more sales potential. Thus Wolf Camera

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was chosen in AA's stead. 2

As beneficiary of the key dealer program, Wolf Camera was slated to receive over non-key dealers a price advantage on purchases. Grabowski alleged that Lathrop and Charles Wolf, the owner and CEO of Wolf Camera, hashed out the range of advantage. The range settled upon was four to seven percent per purchase dollar, generally, with specific instances of up to ten percent. 3 Grabowski told Goodelman of various incidents in which he furtively conferred some of this advantage to Wolf Camera by giving it free goods, advertising, and other benefits.

According to Grabowski, the key dealer participants realized that a program imbued with such favoritism bordered on illegality. To avoid legal trouble, Minolta and Lathrop purportedly instructed the regional managers to be familiar with three contrived explanations for their actions: (1) that the favoritism was necessary to meet competitive pricing actions within the marketplace; (2) that the favoritism was necessary to meet competitive advertising actions within the marketplace; and (3) that the favoritism was necessary to compete against grey market pricing. The latter excuse could prove particularly persuasive. In the United States there clearly were grey market 4 camera equipment sellers, the identity, prices, and practices of which were rather obfuscated.

After hearing this tale Goodelman's thinking changed about why AA had taken a bath in the marketplace. He no longer blamed the faulty computer or a bad management decision, but rather Minolta's alleged "key dealer" scheme. Goodelman immediately obtained the services of counsel. Sometime later AA cut off its relationship with Minolta and on February 18, 1986, it filed a five-count complaint in federal court against Minolta, Lathrop, Wolf Camera, and Wolf ("the Appellees").

The complaint, as amended, alleged in Count I that Minolta and Lathrop had violated section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act [hereinafter referred to simply as the RPA] by engaging in a scheme of price discrimination. Section 2(a) 5 makes it (potentially) illegal for a seller to discriminate in price between its customers where the discrimination leads to a reasonable possibility that competition in general or competition with the favored customer specifically may be adversely affected, Corn Prod. Ref. Co. v. FTC, 324 U.S. 726, 742, 65 S.Ct. 961, 969, 89 L.Ed. 1320 (1945), unless the discrimination is justifiable on the basis of the seller's

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costs. FTC v. Morton Salt Co., 334 U.S. 37, 43-44, 68 S.Ct. 822, 827, 92 L.Ed. 1196 (1948). The section does not ban price discrimination per se, but only non cost-justified price discrimination that causes the requisite injury to competition or competitors. 6

Count V alleged that Minolta and Lathrop, through the same scheme, had violated RPA sections 2(d) and 2(e). Sections

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2(d) and (e) are not as generous to discriminating sellers as is section 2(a). Section 2(d) 7 prohibits a seller from paying a customer for "services or facilities" furnished by the customer in connection with the resale of the seller's product, unless the opportunity to receive such a payment is available to all of the seller's customers on "proportionally equal terms." See FTC v. Fred Meyer, Inc., 390 U.S. 341, 350-53, 88 S.Ct. 904, 909-10, 19 L.Ed.2d 1222 (1967); FTC v. Simplicity Pattern Co., Inc., 360 U.S. 55, 65, 79 S.Ct. 1005, 1011, 3 L.Ed.2d 1079 (1959). The section has no "competitive injury" or "cost justification" escape clause like section 2(a). Great A. & Pac. Tea Co. v. FTC, 440 U.S. 69, 79, 99 S.Ct. 925, 932, 59 L.Ed.2d 153 (1979); Simplicity Pattern, supra, 360 U.S. at 66, 70, 79 S.Ct. at 1012, 1014. To force all price discrimination to take a readily recognizable form--from whence it can be tested under the "competitive injury" and "cost justification" guidelines of section 2(a)--section 2(d) creates liability for certain indirect price discriminations related to resale programs upon the mere showing that the indirection is price discrimination, thus "nipping potentially destructive practices before they reach full bloom." Simplicity Pattern, supra, at 68, 79 S.Ct. at 1013. Section 2(e) 8 is similar in scope and language to section 2(d), see e.g., Great A. & Pac. Tea Co., supra, 440 U.S. at 79, 99 S.Ct. at 932, except it bans a seller from furnishing to a customer a service or facility connected with the resale of the seller's product (rather than paying a customer for so furnishing), unless the opportunity to receive the seller's service or facility is available to all of the seller's customers on "proportionally equal terms." Simplicity Pattern, supra, 360 U.S. at 65, 79 S.Ct. at 1011.

Count II alleged the corollary of Counts I & V, that Wolf and Wolf Camera knowingly received discriminatory price advantages in violation of section 2(f) 9 of the RPA. The remaining counts alleged violations of state law: that the Appellees intentionally and tortiously interfered with AA's business and contractual relations (Count III) and that Minolta had breached an implied covenant of good faith and fair...

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