Bailey v. Allgas, Inc.

• Citation: 284 F.3d 1237
• Decision Date: 08 March 2002
• Docket Number: No. 01-10559.,01-10559.
• Parties: P. David BAILEY, Doris Bailey, Plaintiffs-Counter-Defendants-Appellants, v. ALLGAS, INC., Defendant-Counter-Claimant-Appellee, William Ervin, Lampton-Love, Inc., Liquified Petroleum Gas Management, Inc., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

284 F.3d 1237

P. David BAILEY, Doris Bailey, Plaintiffs-Counter-Defendants-Appellants, v. ALLGAS, INC., Defendant-Counter-Claimant-Appellee, William Ervin, Lampton-Love, Inc., Liquified Petroleum Gas Management, Inc., Defendants-Appellees.

No. 01-10559.

United States Court of Appeals, Eleventh Circuit.

March 8, 2002.

COPYRIGHT MATERIAL OMITTED

L. Vastine Stabler, Jr., Birmingham, AL, Romaine S. Scott, III, Garrison, Scott, Gamble & Rosenthal, Birmingham, AL, for P. David and Doris Bailey.

Carl S. Burkhalter, Birmingham, AL, for Allgas, Inc.

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

Before BLACK, HILL and STAPLETON,^* Circuit Judges.

BLACK, Circuit Judge:

This antitrust action arises from a price war that erupted between liquid propane gas competitors in northern Alabama. Following the demise of their business, Appellants P. David and Doris Bailey brought suit against competitor Allgas, Inc., alleging the company engaged in discriminatory below-cost pricing in violation of the Robinson-Patman Act and Alabama state law. In support, Appellants offered the expert testimony of an economist. The district court held the expert testimony with respect to key elements of the Robinson-Patman Act claim was inadmissible. Additionally, the district court held Appellants' claims failed even if the testimony was admissible. Accordingly, the district court granted summary judgment. We affirm.

I. BACKGROUND

A. Factual Background

Appellee Allgas, Inc. (Allgas) is a distributor and seller of liquid propane gasoline operating in Alabama. Allgas sells propane gas for both residential and industrial use. The company maintains several offices throughout Alabama. Each office exclusively serves a separate district, with the price of propane gas varying from office to office. The Allgas district offices serving northern Alabama are located in Altoona, Arab, Gadsden, Gardendale and Huntsville.¹

In August 1984, Allgas hired Appellant P. David Bailey as manager of its Altoona district office. The Altoona office, which is located in eastern Etowah County, serves customers in portions of several counties including: Blount County, St. Claire County, Etowah County, DeKalb County, and Marshall County. Approximately 50% of the customers served by the Altoona office are residential users; the remaining 50% are comprised of industrial purchasers. Generally, the price of propane gas sold to industrial purchasers is less than the price sold to residential users due to economies of scale, as industrial purchasers receive significantly larger volumes of gas per delivery.²

In 1991, Bailey was promoted to manager of Allgas' Gardendale district office, located in Cullman County, Alabama. His brother Max Bailey then was hired as manager of the Altoona office. In October 1993, Bailey became disgruntled over his compensation and resigned from employment with Allgas. Max Bailey, however, remained as manager of the Altoona office.

Soon after resigning from Allgas, Bailey decided to open a competing liquid propane gasoline business. To fund his new business, Bailey obtained a $400,000 loan from the Small Business Administration (SBA) and a $100,000 personal loan from a friend. In his application for the SBA loan, Bailey stated his intent to hire the "best office worker" and the "two most productive route salesmen" from Allgas' Gardendale office and to hire the "best office worker" and the "two most productive route salesmen" from Allgas' Altoona office. See Bailey Depo. at 100-17. Ultimately, Bailey hired four Allgas employees to work for his new business, including his brother Max Bailey.³

Bailey and his wife, Doris, opened Bailey's Propane Gas in September 1994. The business was headquartered in Susan Moore, Alabama, which is located in northern Blount County. Susan Moore is approximately ten miles from Altoona, Alabama. The intended service area of Bailey's Propane Gas included portions of three counties: Blount County, Etowah County, and Marshall County.⁴ Although the region served by Bailey's Propane Gas and the region served by Allgas' Altoona office overlapped to a certain degree, the two service areas were not coextensive with one another. Additionally, Bailey's Propane Gas only served residential customers.

On or about the day Bailey's Propane Gas opened for business, Allgas cut the price of propane gas offered to residential customers of its Altoona office by 17¢ — from 67¢ per gallon to 50¢ per gallon. The price reduction was effective only in the district served by the Altoona office; no other Allgas district office offered residential gasoline for 50¢ per gallon. The price reduction was a pre-emptive maneuver intended to protect against the loss of customers serviced by the Altoona office.⁵ Bailey already had approached several Allgas employees about defecting to his new company, and Allgas was particularly concerned about losing its drivers. Because the nature of the liquid propane business mandates delivery of the product to the consumer, Allgas' drivers generally were the only employees having personal contact with its customers.

Unable to match Allgas' price of 50¢ per gallon, Bailey's Propane Gas offered residential customers a price of 67¢ per gallon. In late December 1994, after experiencing wholesale price increases from its supplier, Allgas raised residential prices to approximately 65¢ per gallon. Over the next few months, Allgas' prices steadily increased. According to the Baileys, however, the prices charged by Allgas did not normalize until July or August of 1995. By August 1995, Bailey's Propane Gas was out of business.

B. Procedural Background

Following the demise of their business, the Baileys brought suit against Allgas.⁶ They alleged Allgas had engaged in price discrimination in violation of the Robinson-Patman Act, 15 U.S.C. § 13.⁷ The Baileys also put forward a number of state law claims, including a claim for tortious interference with a business or contractual relationship.⁸ Allgas counterclaimed, alleging Bailey had misappropriated trade secrets and engaged in intentional interference with its business relations.

In support of their Robinson-Patman Act claim, the Baileys offered the expert testimony of Dr. William Gunther, then Professor of Economics at the University of Alabama. Shortly before trial, the district court conducted a Rule 104 hearing to determine whether Gunther was qualified to testify concerning essential elements of the claim.⁹ In March 1998, following extensive briefing by the parties and a full hearing on the issue, the district court issued a memorandum opinion concluding Gunther's report and deposition were so deficient as to disqualify him from testifying on the antitrust issues. The court then granted summary judgment in favor of Allgas and entered a final judgment under Fed.R.Civ.P. 54(b) dismissing the Baileys' Robinson-Patman Act and tortious interference claims. The Baileys appealed.

On June 11, 1999, this Court reversed the exclusion of Gunther's testimony and vacated the judgment in favor of Allgas, noting "the district court erred by conflating the admissibility of Gunther's evidence with the sufficiency of that evidence to overcome Allgas's motion for summary judgment." See Bailey v. Allgas, Inc., No. 98-6278, slip op. at 9, 184 F.3d 824 (11th Cir. June 11, 1999). Of particular concern was the failure of the district court to assess whether Gunther's methodology was sufficiently reliable as determined by the sort of inquiry mandated under Daubert v. Merrell Dow Pharmaceuticals, Inc.¹⁰ Although the case was remanded to the district court "for a determination of whether summary judgment [was] still appropriate in light of Gunther's evidence," the Court indicated certain issues could be re-examined on remand:

We do not address the following issues, which the district court identified but did not reach: 1) Allgas's contention that Gunther's identification of the relevant geographic market is unreliable and must be excluded; and 2) its contention that Gunther's estimation of Allgas's market power is also unreliable and due to be excluded. Nor do we address whether, even with the aid of Gunther's expert evidence, Bailey has failed to raise a genuine issue of material fact with respect to his Robinson-Patman claim, particularly in light of the district court's enumeration of the problems with Gunther's efforts to define a relevant geographic market. The district court may address these and other matters on remand.

Bailey, No. 98-6278 at 16 n.5.

On remand, Allgas again moved to strike the testimony of Gunther and for summary judgment. After determining the Court's mandate did not preclude re-examination of Gunther's proposed testimony, the district court¹¹ found his methodology "fail[ed] to meet the criteria of professional soundness and validity that are at the core of Daubert's reliability requirement." See Bailey v. Allgas, Inc., 148 F.Supp.2d 1222, 1235-36 (N.D.Ala.2000). Concluding his report and deposition testimony demonstrated "an utter lack of expertise and reliability," the district court held Gunther's expert testimony was inadmissible under Fed.R.Evid. 702. Id. at 1246. Furthermore, the district court held Allgas was entitled to summary judgment because, even if Gunther's opinions were admissible, they did not constitute sufficient evidence to support the Baileys' Robinson-Patman Act claim. Id. Finally, in a separate order, the district court granted summary judgment in favor of Allgas on the Baileys' tortious interference claim because the Baileys could not demonstrate Allgas engaged in illegal tactics when lowering its price of residential gas.

The Baileys then filed the instant appeal. On appeal, the Baileys contend the exclusion of Gunther's testimony violates the mandate of the Court's prior opinion. Additionally, the Baileys assert the district court again erred by conflating the admissibility of Gunther's...