Bailey's, Inc. v. Windsor America, Inc.

• Decision Date: 19 December 1991
• Docket Number: No. 88-5919,88-5919
• Citation: 948 F.2d 1018
• Parties: 1991-2 Trade Cases P 69,627 BAILEY'S, INC., Plaintiff-Appellant, v. WINDSOR AMERICA, INC.; and Windsor Machine Company, Ltd., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1018

948 F.2d 1018

1991-2 Trade Cases P 69,627

BAILEY'S, INC., Plaintiff-Appellant, v. WINDSOR AMERICA, INC.; and Windsor Machine Company, Ltd.,

Defendants-Appellees.

No. 88-5919.

United States Court of Appeals, Sixth Circuit.

Argued May 26, 1991.

Decided Nov. 6, 1991.

Rehearing and Rehearing En Banc

Denied Dec. 19, 1991.

John McQuiston, II (briefed), Goodman, Glazer, Greener, Schneider & McQuiston, William L. Gibbons (argued and briefed), Evans & Petree, Memphis, Tenn., for plaintiff-appellant.

James D. Senter, III, Senter & Senter, Humboldt, Tenn., Andrew S. Krulwich (argued), Walter J. Andrews, Paul F. Khoury (briefed), Wiley, Rein & Fielding, Washington, D.C., for defendants-appellees.

Before NELSON and BOGGS, Circuit Judges, and ALDRICH, District Judge. ^*

DAVID A. NELSON, Circuit Judge.

This is a treble-damage action brought under the antitrust laws by Bailey's, Inc., a California corporation that operates a mail order logging supply business.

One of plaintiff Bailey's suppliers was defendant Windsor America, Inc., which sells chain saw replacement products (primarily guide bars and saw chain) manufactured by Windsor America's Canadian parent, defendant Windsor Machine Company, Ltd. A predecessor of Windsor America began selling Windsor products to Bailey in 1978, and this sales relationship continued until Windsor America terminated it in 1983-84.

Following the termination, Bailey sued Windsor America and Windsor Machine (collectively, "Windsor") in federal court. The complaint alleged, among other things, that the termination resulted from a combination or conspiracy in restraint of trade, with Windsor joining in what Bailey now calls a "horizontal boycott" among competing distributors of Windsor products. The distributors themselves were not joined as defendants.

After extensive discovery proceedings had been conducted, the district court entered summary judgment in favor of defendant Windsor. Applying the test set forth in Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 764, 104 S.Ct. 1464, 1471, 79 L.Ed.2d 775 (1984), the court held that Bailey had failed to present evidence that would "tend[ ] to exclude the possibility that the manufacturer and nonterminated distributors were acting independently."

On appeal, Bailey asks us to decide four issues:

"1. Does the record contain sufficient evidence to allow a jury to determine whether there was a horizontal boycott of Bailey's, Inc. in violation of Section 1 of the Sherman Act, 15 U.S.C. Section 1?

2. Does the record contain sufficient evidence to allow a jury to determine whether there was a conspiracy to monopolize ... in violation of Section 2 of the Sherman Act, 15 U.S.C. Section 2?

3. Does the record contain sufficient evidence to allow a jury to determine whether there was a violation of the Tennessee antitrust laws, 48 T.C.A. Sections 47-25-101 and 47-25-102 ...?

4. Does the record contain sufficient evidence to allow a jury to find a breach of the covenant of good faith and fair dealing by Windsor?"

Upon review of the record de novo, we conclude that each of these questions must be answered "no." The first issue has been a troublesome one for us, because Bailey did, in our view, present evidence from which a jury could have inferred that the termination of Windsor's sales to Bailey represented a quid pro quo for one or more distributors that either offered to increase their own purchases of Windsor products if Windsor stopped dealing directly with Bailey or threatened to stop buying from Windsor if Windsor continued selling to Bailey. There is no evidence that Windsor agreed or sought to agree with any distributor on resale price levels, however, and we are satisfied that there is no basis on which a jury could be permitted to find that Windsor participated in a group boycott of the sort that would be illegal per se under § 1 of the Sherman Act. Accordingly, and because we see little merit in Bailey's remaining arguments, we shall affirm the summary judgment in favor of defendant Windsor.

I

The depositions filed in this case indicate that approximately 1.5 million replacement guide bars for chain saws are sold in the United States every year. Approximately 8% of these guide bars are manufactured by defendant Windsor. Windsor competes with six or eight other guide bar manufacturers, including Omark Industries, a U.S. company with a market share of around 40%, and Stihl, a German company with a 20% share of the U.S. market.

Windsor is a relative newcomer to the business of manufacturing saw chain, and Windsor's saw chain sales are said to account for less than 5% of the U.S. market. Omark's market share, according to Windsor, is probably 75%. End-users can readily substitute the saw chain and guide bars of one manufacturer for the products of another manufacturer.

Windsor began to sell logging products in the United States during the 1960s. In the five fiscal years ending July 1, 1985, Windsor America's U.S. sales averaged somewhat over $6 million per year. The company has never maintained a large sales force in this country; as of December of 1984, for example, the manager of Windsor America testified that he had only five active salesmen, a part-time sales manager, and one trainee working for him.

Beginning in the mid-1970s, according to the deposition testimony, Windsor began concentrating its sales efforts on a class of customers usually referred to as "distributors." The typical distributor employs its own traveling salespeople and makes a significant part of its sales, if not all of them, to dealers. Dealers, in turn, sell to end-users.

Windsor's distributors have never been precluded from handling competitors' products, as far as the record shows, and it is common for the distributors to carry multiple brands. Windsor distributors operate in whatever geographical area they wish; no territorial restraints are imposed. It appears, indeed, that Windsor does not even enter into written distributorship agreements with its customers.

Windsor publishes suggested dealer prices and suggested retail prices, but does not require adherence to its suggested prices. Neither does Windsor attempt to tell its distributors what customers they may sell to--at least as long as the distributor's customer base includes dealers.

During the early 1980s, the record shows, Windsor maintained sales relationships with approximately 200 distributors in the United States. The number of chain saw dealers in this country--potential customers of the distributors--is said to have exceeded 20,000. The number of lawn and garden dealers, lumber yards and hardware stores that would also be potential customers of the distributors is far larger than that.

Distributors of chain saw products perform a significant warehousing function. This is demonstrated most graphically, perhaps, by the fact that distributors are the sole source from which plaintiff Bailey buys guide bars and saw chain manufactured by Omark Industries, the market leader. Bailey has found that the distributors stock a wider variety of Omark products than does Omark itself.

The traveling salespeople employed by distributors promote the distributors' product lines to the dealers they call on, show the dealers how to sell the distributors' products, and provide information about product changes and warranty and safety matters. Several witnesses indicated that the salesperson's function is an important one. Wendell Walker, for example, the president of a former Windsor distributor called Scotsco, Inc., and a man identified by Bailey's president as a person who "knows what goes on in the industry," gave this testimony:

"Our opinion is that you can add value to the product line you're distributing if you're out there promoting it and showing the dealer how to sell it; showing him the servicing techniques, how to handle the warranty, if it's appropriate. Asking him for the business, in effect.

* * * * * *

In this industry we have bars and chains. There are [conservatively] probably 30 different motor mounts. On a bar there are three different groove widths, there are half a dozen different nose pitches. And there's scarcely one dealer that understands all of that and doesn't get screwed up, let alone the end user.

And it's Scotsco policy we're out there teaching and helping the dealer with this so he could do a better job servicing the end user. That is all without saying anything about the event of [Consumer Product Safety Commission] requirements which even get more complicated. So it is Scotsco's belief and business philosophy that the servicing at the dealer level is necessary.

Q. And salesmen provide this function?

A. That is correct."

Many of Windsor's distributors sell not only to dealers but also to the general public. It is uncontroverted that such distributors--which give better prices to dealers than to the public--generally have salespeople calling on dealers.

Windsor America itself makes no sales at the retail level, and it has only one wholesale price structure. It offers volume discounts, periodic "promotions," and payment of shipping charges on orders above a specified level, but the same prices are available to all Windsor America customers. Both Windsor and its customers think of these prices as distributor prices.

Although most Windsor customers are "servicing distributors"--distributors with a sales force responsible for calling on dealers--Windsor has some customers that do not fit the usual profile. In Iowa, for example, Windsor sells to a buying-cooperative composed of some 150 dealers. The cooperative evidently has no salespeople on the road, but it stages shows at which Windsor and other manufacturers set up booths and display their products to the cooperative's dealer-members. In addition, Windsor admits that as many as four of its conventional distributors currently have no salespeople calling on dealers.

Windsor Machine Company makes some U.S....