B-S Steel of Kansas, Inc. v. Texas Industries

• Decision Date: 28 February 2006
• Docket Number: No. 04-3327.,04-3327.
• Citation: 439 F.3d 653
• Parties: B-S STEEL OF KANSAS, INC., a Kansas corporation, Plaintiff-Appellant, v. TEXAS INDUSTRIES, INC., a Delaware corporation, also known as TXI; Chaparral Steel Company, a Delaware corporation, also known as TXI Chaparral; and Chaparral Steel Texas, Inc., a Delaware corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

439 F.3d 653

B-S STEEL OF KANSAS, INC., a Kansas corporation, Plaintiff-Appellant, v. TEXAS INDUSTRIES, INC., a Delaware corporation, also known as TXI; Chaparral Steel Company, a Delaware corporation, also known as TXI Chaparral; and Chaparral Steel Texas, Inc., a Delaware corporation, Defendants-Appellees.

No. 04-3327.

United States Court of Appeals, Tenth Circuit.

February 28, 2006.

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David A. Rameden, Shook, Hardy & Bacon, LLP, Overland Park, Kansas (Jerrod A. Westfahl, Shook, Hardy & Bacon, LLP, Overland Park, Kansas, and James R. Eiszner, Shook, Hardy & Bacon, LLP, Kansas City, Missouri, with him on the briefs), for Plaintiff-Appellant.

George E. Leonard (Dennis D. Palmer with him on the brief), Shughart, Thomson & Kilroy, P.C., Kansas City, Missouri, for Defendants-Appellees.

Before LUCERO, ANDERSON, and MURPHY, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

Appellant B-S Steel of Kansas, Inc., a Kansas corporation, brought suit against four steel manufacturers, Chaparral Steel Company ("CSC"), Chaparral Steel Texas, Inc., Texas Industries, Inc., and Chaparral Steel Midlothian, L.P. ("Midlothian") (collectively referred to as the "original defendants"), all related entities. Its complaint alleged price discrimination in violation of the Robinson-Patman Act, 15 U.S.C. § 13, and a number of state law claims. The district court referred the claims against one of the defendants, Midlothian, involving pre-April 3, 2001 transactions, to arbitration, and the arbitration panel concluded that B-S Steel could not show antitrust injury or prove an amount of damages on these claims. The district court confirmed the arbitration award and dismissed Midlothian as a party. The remaining three defendants moved for summary judgment, and the district court granted their motion, concluding that the arbitration award was entitled to preclusive effect and thus barred B-S Steel's claims for damages, and that B-S Steel lacked standing to pursue injunctive relief. B-S Steel appealed. We affirm for the reasons stated below.

BACKGROUND

B-S Steel is an independent distributor of wide flange steel beams ("WFB"), which it purchases from manufacturers and then sells to subcontractors for use in construction. In 1988, B-S Steel executed a Conditions of Sale agreement with and began purchasing WFB from CSC. In 1997, B-S Steel signed another Conditions of Sale document, issued by Midlothian, and continued purchasing WFB. A third Conditions of Sale document was executed on April 3, 2001.

In October 1999, while B-S Steel was purchasing WFB from the defendants, the defendants initiated a pilot incentive program with one of its largest customers, granting a $5 or $10 rebate per ton of WFB purchased. Similar incentives— including rebates, quick-pay discounts, and fixing prices in relation to those of foreign WFB suppliers—were extended to four other purchasers, not including B-S Steel, during the period 1999 through the end of 2001. These incentives were granted in secret, on condition that the favored purchasers use the savings for capital improvements rather than passing it on to their customers. However, B-S Steel discovered the incentives program in May 2001 and soon afterwards initiated the present lawsuit against the defendants in Kansas district court.

In its amended complaint, B-S Steel alleged that the defendants had engaged in price discrimination, in violation of the Robinson-Patman Act, 15 U.S.C. § 13(a);¹ as well as fraud, misrepresentation, and intentional interference with prospective business advantage, in violation of state law. B-S Steel sought damages, including treble damages under § 4 of the Clayton Act, id. § 15,² as well as injunctive relief, under § 16 of the Clayton Act, id. § 26,³ for its alleged injury.

Defendant Midlothian moved to stay the district court action and to refer all claims against it that concerned pre-April 3, 2001, transactions to arbitration, based on an arbitration clause in the 1997 Conditions of Sale document that Midlothian had issued and B-S Steel had signed. B-S Steel contested the validity of the 1997 document. However, in an order dated September 3, 2002, the district court, applying Texas law, held that the document was an enforceable contract based on Midlothian's partial performance in shipping 150 orders to B-S Steel during the applicable period. Further holding that B-S Steel's claims fell within the scope of the arbitration clause, the court granted Midlothian's motion to stay litigation of B-S Steel's pre-April 3, 2001, claims against it and to refer them to arbitration. In response to Midlothian's further motion, the court determined that the 2001 Conditions of Sale document was also enforceable and that B-S Steel's post-April 3, 2001, claims had to be dismissed for improper venue, pursuant to a forum selection clause in the 2001 document.

The other three defendants also moved to stay proceedings against them due to the arbitration provision. However, the district court denied their request on the basis that these three defendants were not parties to the contract containing the arbitration clause. The court observed that "arbitration [between B-S Steel and Midlothian] would not necessarily bind the other three defendants, nor necessarily adjudicate the claims and rights asserted against these three defendants." Appellant's App. Vol. I at 169.

B-S Steel then voluntarily dismissed Midlothian as a defendant in the action and indicated that it would proceed with litigation against the remaining three defendants but would not initiate arbitration with Midlothian. Midlothian, however, filed a Demand for Arbitration with the American Arbitration Association, seeking a declaration that it was not liable to B-S Steel on the antitrust and state law claims that B-S Steel had asserted in district court. In response, B-S Steel submitted counterclaims, which included the same allegations that had been asserted in its amended complaint.⁴

While the arbitration process was underway between B-S Steel and Midlothian, the remaining parties in this lawsuit continued with the discovery process, having reached an agreement that discovery in the two proceedings would be conducted in parallel. Thus, B-S Steel filed the same report quantifying its damages, prepared by an expert witness, Lawrence Redler, both in district court, pursuant to Fed. R.Civ.P. 26(a)(2), and in the arbitration.

Following a nine-day hearing and the parties' submission of post-hearing briefs, the three-person arbitration panel issued a Reasoned Award in favor of Midlothian in November 2003. In its discussion of B-S Steel's Robinson-Patman Act claim, the panel indicated that B-S Steel had met its burden in establishing that Midlothian had engaged in prohibited discriminatory pricing through its incentive programs between October 1999 and the end of 2001. The panel further indicated that Midlothian could not justify the discrimination as a necessary allowance for differences in manufacturing, sales, or delivery costs, as permitted under section 2(a) of the Act, or as a response to a competitor's preexisting offer, as permitted under section 2(b) of the Act. However, the panel concluded that B-S Steel had failed to meet its burden of proving that it had suffered antitrust injury because it could not establish a causal connection between any incentives given to other buyers and any harm to B-S Steel.

The panel then considered whether, even assuming B-S Steel could establish the fact of antitrust injury, B-S Steel would be able to quantify its damages. In conducting this inquiry, the panel explained that "the quantum of proof required to quantify damages in a Clayton Act case is significantly relaxed," but that a factfinder "`may not render a verdict on the basis of speculation or guesswork.'" Reasoned Award at 21, Appellant's App. Vol. IV at 873 (quoting Copper Liquor, Inc. v. Adolph Coors Co., 624 F.2d 575, 580 (5th Cir.1980)). The panel then examined two damages models as presented in Redler's damages report. The first model, attempting to demonstrate lost profits due to margin squeeze, compared B-S Steel's pre-2000 overall profit margins with its post-June 2000 WFB profit margins, using three different time periods ending in April 2001, December 2001, and June 2003, respectively.⁵ Citing a number of flaws, the panel concluded that the analysis using this model lacked "reliability and legitimacy." Id. at 23, Vol. IV at 875. The second model, attempting to demonstrate lost sales over periods beginning in October 1999 and ending in April 2001, December 2001, and December 2002, involved a linear regression analysis based on the monthly sales of WFB by buyers that received incentives, using the monthly purchases of WFB by these buyers as a proxy for that figure, and B-S Steel's monthly sales of WFB during the same periods. The panel considered the analysis under this model to be "inherently flawed and totally unreliable." Id. at 25, Vol. IV at 877. Accordingly, the panel concluded that B-S Steel had "failed to meet its evidentiary burden[] on . . . quantification of damages." Id.

The panel therefore denied B-S Steel treble damages under § 4 of the Clayton Act. Applying Kansas law, the panel also determined that Midlothian had made fraudulent misrepresentations to B-S Steel but that, again, B-S Steel failed to prove it suffered any damages as a result. The panel therefore granted Midlothian's request for declaratory relief on these claims.⁶

B-S Steel then filed a motion to vacate the arbitration award in Texas district court. Meanwhile, Midlothian filed a motion to confirm the arbitration award in the original Kansas district court proceeding. Presumably because it was no longer a party to that proceeding, Midlothian then voluntarily dismissed its motion and instead filed a new action, seeking an order confirming the arbitration award. The Kansas district court...