Barry Wright Corp. v. Pacific Scientific Corp., Civ. A. No. 78-485-S.
| Decision Date | 28 January 1983 |
| Docket Number | Civ. A. No. 78-485-S. |
| Citation | 555 F. Supp. 1264 |
| Parties | BARRY WRIGHT CORPORATION, Plaintiff, v. PACIFIC SCIENTIFIC CORPORATION, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Donald B. Gould, James E. McGuire, Goodwin, Procter & Hoar, Boston, Mass., for plaintiff.
John A. Nadas, Choate, Hall & Stewart, Boston, Mass., Joseph J. O'Malley, Norman A. Dupont, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., for defendant.
FINDINGS, RULINGS AND ORDER
Plaintiff Barry Wright Corporation ("Barry") brought this action pursuant to 15 U.S.C. § 15 to recover damages for alleged violations of the antitrust laws. Plaintiff claims that defendant Pacific Scientific Corporation ("Pacific") has violated Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2) and Section 3 of the Clayton Act (15 U.S.C. § 14). Plaintiff also alleges an action in tort, claiming that Pacific tortiously interfered with its contractual relations.
Originally ITT Grinnell Corporation ("Grinnell") was joined as a defendant. Before trial, however, the plaintiff and Grinnell effected a settlement and Grinnell is no longer in the case as a party. The case turns on the relationships between Grinnell and Barry on the one hand, and Grinnell and Pacific on the other. Analysis of the conduct of Grinnell and its officers is pivotal to the resolution of this case.
Findings of Fact.
Grinnell is the country's largest producer of pipe hanger systems for nuclear power plants. The selection of such systems for a proposed plant is typically done by the firm of architects and engineers ("A & E's") who have contracted to design the plant and supervise its construction. Critical components of a pipe hanger system are the shock arresters or snubbers. These must be designed to permit the normal gradual movement of the pipes as they expand and contract in response to the superheated material which passes through them. They must, however, resist sudden movement from earthquake or explosion. Snubbers are rated by the amount of force which they can resist. The sizes of snubbers involved in this case ranged from 250 lbs. (¼ kip) to 100,000 lbs. (100 kip) sizes.
Until 1975 most snubbers were hydraulic. Grinnell made its own, which it sold at a favorable mark-up as components of its pipe hanger systems. In 1974 and 1975, hydraulic snubbers distributed by another manufacturer developed leaks. A & E's in the industry started to specify mechanical snubbers in response to anxiety over the potential danger of leaky hydraulic snubbers.
By 1975 Pacific had designed and produced an effective mechanical shock arrester which operated by a patented rotating inertial device. Pacific was only partially successful in making independent sales to the A & E's, because the latter did not wish to carry inventories of snubbers; they wanted the pipe hanger companies to carry the inventory and release snubbers as needed during the installation of the pipe hanger system. Pacific was successful, however, in persuading the A & E's to specify mechanical snubbers to the exclusion of hydraulic snubbers. From 1975 on and during all the period material to this case, Pacific was for all practical purposes the only domestic source of mechanic snubbers. Mechanical snubbers manufactured in other countries did not meet the requirements of the Nuclear Regulatory Commission.
Pacific's share of the domestic pipe snubber market, including hydraulic snubbers, was 47% in 1976, 83% in 1977, 84% in 1978 and 94% in 1979. Pacific also makes sales of mechanical snubbers in foreign countries, but some of these sales were negotiated in the United States through local A & E's who were constructing nuclear plants abroad.
Grinnell continued to produce its hydraulic snubber (which had not leaked) to satisfy its backlog of orders. Most of Grinnell's new contracts, however, required mechanical snubbers. It attempted to design and manufacture its own mechanical snubber but was unsuccessful. It was therefore forced to buy from Pacific.
At the same time Pacific was trying to sell its snubbers directly to the A & E's as separate components, in competition with Grinnell. The quantity discount which Pacific allowed Grinnell permitted a small mark-up which was considerably less than the mark-up Grinnell had enjoyed on its own hydraulic snubbers. Grinnell set out to find another, more profitable source.
Barry had a division in California (not far from Pacific's plant) which was engaged in aerospace engineering, and had in fact produced mechanical shock absorbers for aerospace application. In 1973 it had produced a prototype snubber for use in nuclear power plants, but had decided not to enter the market and did not develop its product at that time.
Grinnell learned of Barry's prototype snubber and in late 1975 entered into negotiations with Barry to attempt to generate another source of mechanical snubbers. On January 30, 1976, Grinnell entered into a contract with Barry for the development of a mechanical snubber. The Grinnell-Barry contract consisted of two phases.
The first phase was a development phase which did not bind either party to purchase or sell snubbers. During phase one, Grinnell agreed to pay Barry $180,000 for development costs, an additional $54,000 for production tooling, and up to $60,000 for special test equipment.
On August 31, 1976, Grinnell and Barry agreed to enter into phase two of the contract. During this phase, Barry was to develop production capability for six sizes of snubbers by January 28, 1977. Grinnell was obliged to purchase its requirements of mechanical snubbers from Barry for the next three years, subject to an obligation to purchase at least $9 million but not more than $15 million over the three year period. Grinnell retained the option to purchase Barry's snubber production facilities at any time during phase two. Barry agreed not to compete with Grinnell for five years after such purchase. In addition, while Barry was manufacturing snubbers for Grinnell, it could not sell mechanical snubbers to anyone else.
The contract contained schedules for the completion and qualification (i.e., passing Grinnell's tests of conformity to specifications) of the various sizes of snubbers. Barry claims that these schedules merely reflected goals or expectations. Grinnell apparently claimed that the schedules were contract performance dates. In any case, over the next eighteen months Barry fell progressively further behind those schedules. As of January, 1977, it had not qualified any of its snubbers.
Meanwhile, Grinnell was buying snubbers from Pacific. Paul Milman, who was in charge of Grinnell's pipe hanger business, was stalling as much as possible on snubber delivery, and purchasing only the required minimum amounts, in the hope that the Barry snubbers would soon be in production and available to Grinnell at a more favorable price. Delay became increasingly difficult, however, because of mounting pressure from Grinnell's customers for delivery of snubbers.
In the summer of 1976, Stephen Toth became president of Pacific. He observed that the number of orders that Pacific was receiving from Grinnell was considerably less than the number of mechanical snubbers that had been specified in outstanding pipe hanger contracts. He determined to have a meeting with Milman in order to create "a more healthy relationship" between the companies, i.e., get more orders from Grinnell for snubbers. Milman, Toth and Pope, the head of Pacific's Kintech Division, which manufactured snubbers, met at Pacific's plant on August 23, 1976. Toth asked Milman for an order. A further meeting was set up for August 31 at the Grinnell office in Providence, Rhode Island. Milman continued to stall on placing a large order, in the hope that Barry's snubber would soon be on line. Toth and Pope then agreed to increase the discount from the standard 20% to 30% on the four smaller sizes of snubber and 25% on the larger sizes.
With this incentive, Milman, on behalf of Grinnell, agreed to order $5.7 million worth of snubbers to cover Grinnell's expected needs for 1977. Pacific granted the additional discounts.
Milman informed Barry of this development. Barry requested that Grinnell hold off any long term orders to Pacific to give it a chance to qualify its snubbers, which it represented it could do by early 1977.
Milman then presented the issue to Coyle, the president of Grinnell. Coyle took the position that it was unnecessary to place such a large order. He preferred to rely on Barry to produce its snubber in time to meet customer demand and directed Milman to cancel the September order. Milman cancelled the $5.7 million order and placed an order for $1 million of Pacific snubbers on October 20, 1976. Pacific accordingly retracted the additional discounts and accepted the smaller order at the standard discount.
The schedules attached to the Grinnell-Barry contract called for Barry to develop production capacity for six sizes of snubbers by January 28, 1977. As of December, 1976, it had not even produced a prototype of any size snubber which qualified under Grinnell's specification. Barry officials notified Grinnell that they could not deliver a production project before May of 1977. On January 6, 1977, Barry postponed its projected delivery date to June, 1977.
Milman became increasingly anxious about Grinnell's ability to supply its customers. He met with Pope and Toth in California in mid-December, but without significant results, partly because Pope and Toth now distrusted Milman. Toth in particular thought that he could secure more favorable orders if he could go over Milman's head to Coyle. Milman arranged a meeting in Miami on January 10, 1977 at which he, Coyle, Toth and Pope were present. No business was transacted, but they agreed to continue negotiation in California on January 27.
On January 18, Barry set back its projected delivery dates an additional two months...
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Barry Wright Corp. v. ITT Grinnell Corp.
...to Grinnell at a specially low price and Grinnell agreed to take nearly all its snubber requirements from Pacific. The district court, 555 F.Supp. 1264, found that the relevant contract provisions did not violate the antitrust laws. We agree with the district court on this matter, and on ot......