Becker v. Egypt News Co., Inc.

• Decision Date: 01 September 1983
• Docket Number: No. 82-2222,82-2222
• Citation: 713 F.2d 363
• Parties: 1983-2 Trade Cases P 65,517 Michael BECKER, Appellant, v. EGYPT NEWS COMPANY, INC., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 363

713 F.2d 363

1983-2 Trade Cases P 65,517

Michael BECKER, Appellant, v. EGYPT NEWS COMPANY, INC., Appellee.

No. 82-2222.

United States Court of Appeals,

Eighth Circuit.

Submitted March 17, 1983.

Decided July 29, 1983.

Rehearing and Rehearing En Banc Denied Sept. 1, 1983.

Mark G. Arnold, Thomas M. Carney, Husch, Eppenberger, Donohue, Elson & Cornfeld, St. Louis, Mo., for appellant.

Bernard Edelman, Clayton, Mo., for appellee.

Before HEANEY, ROSS and FAGG, Circuit Judges.

FAGG, Circuit Judge.

Michael Becker appeals from the district court's ruling that Egypt News' termination of its business relationship with him did not violate Section 2 of the Sherman Act. Becker argues that the court erroneously analyzed Egypt's business justifications and motive for its refusal to deal and that the court failed to consider the effect of Egypt's action on competition in the secondary market. We affirm the district court.

I. BACKGROUND

The Daily Racing Form company publishes a nationally distributed racetrack publication called The Daily Racing Form. The DRF is apparently a unique publication because no other racing publication provides such extensive and detailed horseracing information. In fact, we are told that other horseracing publications derive their information from the DRF. The company has a policy of restricting the wholesale distribution of the DRF in a geographic area to one wholesale distributor. In February 1981, Egypt became the wholesale distributor in the St. Louis metropolitan area when it acquired the assets of the previous distributor, the Molasky family. No contract exists between Egypt and the company; the company has merely granted Egypt distribution rights which can be withdrawn by the company any time Egypt has not performed within its expectations. Becker's family has retailed the DRF and other publications at the Fairmont Park racetrack since 1960. In 1968, Becker replaced his father as the retailer and he pays Fairmont for its permission to sell the DRF and his own tip sheet at its racetrack. Becker's retail outlet at Fairmont Park sells approximately 45% of all the DRF's retailed in the St. Louis area; however, there is no contract between Egypt and Becker.

In a letter dated January 18, 1982, Robert Austin, the owner of Egypt, informed Becker that, due to his dismal retailing performance in 1981, he would no longer be one of Egypt's retailers. The letter stated that Egypt intended to retail the DRF at Fairmont when it purchased the Molasky family assets but the timing of the purchase caused Egypt to "let everything stand" through 1981. The letter went on to detail Egypt's unhappiness with Becker's 1981 retail operation at Fairmont:

Our review of the prior year at the race track found poor promotion of the Daily Racing Form and poor condition of stands in the way of decals, signs, pamphlets, etc. Also, there were several occasions when the stands were left unoccupied during the course of the racing evening. Additionally, lack of copy movement at the race track resulted in sell-outs at some stands and copies being available at others.

Egypt was also dissatisfied with Becker because he would neglect the retailing of the DRF while he peddled his own racetrack publication. Moreover, despite the fact that attendance at Fairmont increased between the 1980 and 1981 racing season, Becker's sales of the DRF were actually less in 1981 than in 1980. Additionally, Becker's unsatisfactory performance had a detrimental impact on Egypt since Egypt, as wholesaler, bore the risk of losing its distributorship if the company became unhappy with its operation.

Despite the letter informing him that Egypt would not sell him the DRF at wholesale, Becker did not contact Egypt but instead contacted the track officials and discussed his desire to continue retailing the DRF at the track. In February and March 1982, after the letter of termination had been sent to Becker, Egypt officials contacted Jack Weaver, Fairmont's general manager, and, unaware of Becker's post-termination discussions, indicated that Becker had to be replaced as the DRF retailer at Fairmont because of his unsatisfactory performance. Ron Ryan, vice president of Egypt's operations, met with Weaver and told him that Egypt could do a better job because it would promote the DRF better than it had been promoted in the past. He promised that salesmen would be there every night two hours before post time and through the rest of the evening until the last race was finished. Ryan also volunteered to sell the track the copies it needed for its racing secretary's office and switchboard at cost. Ryan testified that he had no idea that Becker was in the process of negotiating with the racetrack and Weaver admitted he did not tell anyone at Egypt to submit a proposal that Weaver would be comparing to Becker's proposal.

Weaver testified that Becker and not Egypt received permission to retail the DRF at Fairmont for the 1982 season because Becker had experience and because he made a better financial arrangement. Egypt does not challenge either Fairmont's right to select Becker as its DRF retailer or Fairmont's prerogative to utilize competitive bidding procedures; instead, Egypt stands upon its own prerogative under the facts found by the district court justifiably to refuse to supply Becker with the DRF and maintains that it has no Section 2 liability for its refusal to deal with an unsatisfactory retailer. Hence, consistent with its January letter, Egypt refused to supply Becker with the DRF and his attempts to obtain a quantity of the DRF from other sources to fulfill his obligation to Fairmont were futile. On the day the racing season began at Fairmont, March 26, 1982, Becker commenced this suit seeking an injunction against Egypt's refusal to sell at wholesale. The district court issued a temporary restraining order and conducted a two-day trial in early April to determine whether a permanent injunction should issue. In September 1982, the district court denied Becker permanent injunctive relief finding Egypt's refusal to deal justified by valid business considerations. In January 1983, the district court granted Becker's motion for an injunction pending appeal prohibiting Egypt from refusing to deal.

II. MONOPOLIZATION

Becker urges that Egypt is exercising its monopoly power in violation of Section 2 of the Sherman Act by preventing him from retailing the DRF at Fairmont. The Supreme Court has enunciated two distinct elements of illegal monopolization: "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966). The district court's conclusion that the first element existed because Egypt holds a virtual one hundred percent share of the DRF wholesale market in the St. Louis metropolitan area is not challenged on appeal. The remaining issue is whether Egypt's refusal to sell at wholesale to Becker and attempt to retail the DRF at Fairmont itself constitutes an unlawful abuse of its existing monopoly power in the wholesale market.

Generally, a company can refuse unilaterally to deal without antitrust consequences; however, a monopolist has added obligations in a refusal to deal situation. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 274-75 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980); Byars v. Bluff City News Co., 609 F.2d 843, 854-55 (6th Cir.1979). Egypt seeks to integrate forward into the retail distribution of the DRF at Fairmont Park. Since vertical integration by monopolists can have procompetitive effects, a refusal to deal to accomplish this integration, "as such without more, cannot be held violative of the Sherman Act." United States v. Columbia Steel Co., 334 U.S. 495, 525, 68 S.Ct. 1107, 1123, 92 L.Ed. 1533 (1948); see Byars v. Bluff City News Co., supra, 609 F.2d at 861. To prove that Egypt's vertical integration was a Section 2 violation, Becker needed to establish that the integration would result in unreasonable anti-competitive effects. See Byars v. Bluff City News Co., supra, 609 F.2d at 860; Mid-Texas Communications Systems, Inc. v. American Telephone & Telegraph Co., 615 F.2d 1372, 1388-89 (5th Cir.), cert. denied, 449 U.S. 912, 101 S.Ct. 286, 66 L.Ed.2d 140 (1980). Contrary to Becker's allegations, the district court determined upon substantial evidence that "Egypt News' actions were not unreasonably anti-competitive but a valid exercise of business judgment to protect its investment." Becker v. Egypt News Co., 548 F.Supp. 1091, 1098 (E.D.Mo.1982).

Becker argues that the district court failed properly to scrutinize Egypt's business reasons which are in fact only post hoc justifications. Becker claims that the following evidence, among other examples, establishes the pretextual nature of Egypt's business reasons: (1) Egypt did not complain directly to Becker; (2) Egypt was upset with Becker's failure to hawk the product, which was against track rules; and (3) the Fairmont officials were not dissatisfied with Becker's performance. The record does not support Becker's contentions; on the contrary, it gives affirmative support to the reasons given by Egypt for Becker's termination.

The district court applied the proper standard and recognized the need to "closely examine" the proffered business reasons. 548 F.Supp. at 1097. The court also noted that "[l]ittle evidence was presented that was not contradicted." Id. at 1098. Regarding the lack of complaints directly from Egypt to Becker, the record reveals that when Ryan discussed Becker's shortcomings with track manager Roger Smith, Smith indicated he would deal with Becker to get the problems resolved. Becker himself testified that Smith...