Lovett v. General Motors Corp., 91-2647MN

• Decision Date: 09 September 1993
• Docket Number: No. 91-2647MN,91-2647MN
• Citation: 998 F.2d 575
• Parties: 1993-1 Trade Cases P 70,292 Thomas G. LOVETT, Trustee of the Bankruptcy Estate of John Peterson Motors, Inc.; Donald John Peterson, individually, Appellees, v. GENERAL MOTORS CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 575

998 F.2d 575

1993-1 Trade Cases P 70,292

Thomas G. LOVETT, Trustee of the Bankruptcy Estate of John Peterson Motors, Inc.; Donald John Peterson individually, Appellees, v. GENERAL MOTORS CORPORATION, Appellant.

No. 91-2647MN.

United States Court of Appeals Eighth Circuit.

Submitted May 15, 1992.

Decided July 9, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Sept. 9, 1993.

William B. Slowey, Detroit, MI, argued (James S. Simonson, Richard G. Braman and Quentin R. Wittrock, Minneapolis, MN, Steven J. Cernak, Detroit, MI, on the brief), for appellant.

John A. Cochrane, St. Paul, MN, argued (Stewart C. Loper and Patrick C. Smith, on the brief), for appellees.

Before FAGG, Circuit Judge, HENLEY, Senior Circuit Judge, and HANSEN, Circuit Judge.

FAGG, Circuit Judge.

Thomas G. Lovett, trustee of the bankruptcy estate of John Peterson Motors, Inc. (JPMI), and Donald John Peterson, JPMI's owner and operator, prevailed at trial in this antitrust action against General Motors Corporation (GM). A jury found that GM violated section one of the Sherman Antitrust Act, 15 U.S.C. § 1 (1988) (prohibiting conspiracies in restraint of trade), and awarded JPMI $986,000 in damages, which the district court automatically trebled to $2,958,000, see id. § 15. The jury also awarded damages to Peterson individually. GM then moved for judgment as a matter of law (JAML). The district court granted the motion with respect to Peterson, but denied the motion with respect to JPMI. Lovett v. General Motors Corp., 769 F.Supp. 1506, 1522 (D.Minn.1991). We have already decided Peterson's appeal, Lovett v. General Motors Corp., 975 F.2d 518 (8th Cir.1992), and now consider GM's appeal. We reverse the denial of JAML to GM.

GM markets Buick, Cadillac, Chevrolet, Oldsmobile, and Pontiac vehicles through more than ten thousand dealers. The dealer network is GM's only means to sell its products and to provide presale, point-of-sale, and postsale services to consumers. GM analyzes its dealer network to ensure it has the correct number of properly located dealers of the appropriate size so that GM can provide customers with a convenient arrangement of dealerships and can successfully compete with other auto makers.

Dealer Sales and Service Agreements govern the relationship between GM and each of its dealers. Under the agreements, GM assigns dealers an area of primary responsibility (APR) for the purpose of evaluating performance. Dealers agree to sell and service the product lines effectively and to promote new vehicle sales in their APR's through their own advertising and sales promotions. Dealers must maintain an adequate sales force and provide presale information to consumers. Dealers can sell to any customer, located anywhere, at any price, but must service GM vehicles regardless of where they were purchased. For its part, GM agrees to distribute vehicles in a fair and equitable manner and to explain its distribution method to dealers. GM has final discretion in accepting orders and distributing vehicles. One factor that affects distribution is sales potential in a dealer's APR.

In late 1980, JPMI entered into five-year Sales and Service Agreements with GM's five divisions. JPMI's dealership was located in Lake City, Minnesota, approximately seventy miles from the Twin Cities. JPMI's APR did not include the Twin Cities. According to GM guidelines, JPMI's facility could support servicing between 200 and 250 new car sales annually. From late October 1980 until late February 1983, JPMI operated as a conventional dealer selling motor vehicles from purchased inventory for individually negotiated selling prices, i.e., the manufacturer's suggested retail price (sticker price) less a particular amount negotiated with each buyer. On February 28, 1983, JPMI began marketing all vehicles at $49 over factory invoice. Under this program, JPMI disclosed the factory invoice amount to any potential customer, then added $49 to that price. JPMI reduced the number of cars kept on the lot at the dealership and began operating primarily on a "sold order" basis, meaning customers would purchase new vehicles that GM had not yet made, then JPMI would order the vehicle. When JPMI implemented the program, JPMI began advertising in Twin Cities newspapers. The advertisements encouraged buyers to order cars over the telephone or by mail.

JPMI's new marketing strategy increased its sales to more than 700 vehicles in 1983 and more than 1000 vehicles in 1984, but JPMI's service business did not grow proportionately. Due to JPMI's lower prices and distant location, GM customers in the Twin Cities area often placed their new car orders with JPMI over the telephone or by mail. Predictably, lost sales bothered Twin Cities dealers, who complained to GM about JPMI's $49 over factory invoice program. Dealer associations and individual dealers complained that JPMI's program was detracting business from the Twin Cities area and reducing their profits by about $300 per vehicle. They asked GM to take strong action to eliminate JPMI's program. GM did not respond to the complaints, solicit the views of the dealers or associations, or consult with them. GM filled JPMI's new Buick orders until February 1984, when GM began to restrict JPMI's allocation of vehicles. GM decided to reduce JPMI's allocation after discussing alternative strategies during in-house deliberations. In March 1984, GM formally notified JPMI that Buick would not be able to fill as many of JPMI's orders as in the past, and JPMI should reconsider its marketing strategy. GM did not inform the dealers or dealer associations of its decision. Soon after GM restricted JPMI's car supply, JPMI filed for bankruptcy.

At trial, Lovett contended various Twin Cities GM dealers and GM conspired to reduce JPMI's allocation of vehicles to lessen price competition in the Twin Cities area. In other words, Lovett contended GM used decreased supply as a lever to force JPMI to stop selling vehicles at $49 over factory invoice and to stabilize prices at their earlier higher levels (about $300 over factory invoice). The jury found that "[GM] [d]ealers, in an attempt to substantially restrain price competition, conspire[d] to induce [GM], or one of its divisions, to reduce the allocation of automobiles to [JPMI]" and that GM knowingly became a member of the conspiracy.

GM asserts the district court should have granted its motion for JAML because Lovett did not show GM joined any dealer conspiracy. To establish a violation of 15 U.S.C. § 1, Lovett had to show there was a conspiracy between GM and its dealers. Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761, 104 S.Ct. 1464, 1469, 79 L.Ed.2d 775 (1984). Because there is no direct evidence of conspiracy in this case, we must decide whether a reasonable juror could infer the existence of a conspiracy from the circumstantial evidence. Although we view the evidence and all reasonable inferences in the light most favorable to Lovett when reviewing the district court's denial of JAML, McCabe's Furniture, Inc. v. La-Z-Boy Chair Co., 798 F.2d 323, 327 (8th Cir.1986), the range of permissible inferences from ambiguous evidence is limited in a section one case, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

Section one does not prohibit a manufacturer from taking independent action against a dealer. Monsanto, 465 U.S. at 761, 104 S.Ct. at 1469. This is so because a manufacturer may have its own valid business reasons for taking the adverse action. A manufacturer often wants to ensure its dealers earn enough profit to pay for services and promotional activities that are necessary to market the manufacturer's product efficiently. Id. at 762-63, 104 S.Ct. at 1470; Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 55, 97 S.Ct. 2549, 2560, 53 L.Ed.2d 568 (1977). Manufacturers also have an interest in preventing "free riding." Monsanto, 465 U.S. at 762-63, 104 S.Ct. at 1470; see Sylvania, 433 U.S. at 55, 97 S.Ct. at 2560. A free rider problem may arise when a manufacturer's dealers offer presale, point-of-sale, or postsale services. Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190, 1195 n. 8 (6th Cir.1982). Price-cutting dealers are often able to sell at lower prices by avoiding the cost of providing these services. Id. Consumers can take advantage of the services provided by dealers who do not cut their prices, but purchase the product from the price-cutting dealer. Id. Thus, the dealers who do not cut their prices perform essential services without benefitting from sales. Id. Free riding is a great concern in the automobile industry because service and repair are vital. Sylvania, 433 U.S. at 55, 97 S.Ct. at 2560. The availability and quality of service and repair affect a manufacturer's goodwill and the competitiveness of the manufacturer's product. Id. Accordingly, a manufacturer can take action against a price-cutting dealer without fear of antitrust liability if the action is the product of the manufacturer's independent decision that the price-cutting dealer undermines the well-being of the manufacturer's dealer network, Helicopter Support Sys., Inc. v. Hughes Helicopter, Inc., 818 F.2d 1530, 1533 (11th Cir.1987), even though the manufacturer learns about the price-cutting dealer's behavior from dealers "whose principal or perhaps only concern is with protecting their prices," Morrison v. Murray Biscuit Co., 797 F.2d 1430, 1440 (7th Cir.1986).

Because a fine line separates unlawful concerted action from legitimate business practices, an antitrust conspiracy cannot be inferred from "highly ambiguous evidence." Monsanto, 465 U.S. at 763, 104 S.Ct. at 1470. Conduct that is as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy. Matsushita, 475 U.S. at 588, 106 S.Ct. at 1356. Thus, evidence that...