Bob Maxfield, Inc. v. American Motors Corp.

Decision Date23 February 1981
Docket NumberNo. 79-2150,79-2150
Citation637 F.2d 1033
Parties1980-81 Trade Cases 63,824, 7 Fed. R. Evid. Serv. 1188 BOB MAXFIELD, INC., d/b/a Bob Maxfield American, et al., Plaintiffs-Appellants, and William Fraker and Aileen Fraker, Plaintiffs-Cross Appellees, v. AMERICAN MOTORS CORPORATION et al., Defendants-Third Party Plaintiffs- Appellees-Cross Appellants, v. James R. MAXFIELD, III, et al., Third Party Defendants-Appellants-Cross Appellees. . Unit A
CourtU.S. Court of Appeals — Fifth Circuit

Jack N. Price, P. C., Austin, Tex., for Maxfield et al.

James C. Slaughter, Houston, Tex., for American Motors et al.

Brantly Harris, Stephen Weeks, Houston, Tex., for William Fraker et al.

Appeals from the United States District Court for the Southern District of Texas.

Before WISDOM, GARZA and REAVLEY, Circuit Judges.

WISDOM, Circuit Judge:

This is an action for damages brought under section 1 of the Sherman Act, 15 U.S.C. § 1 (1976); section 3 of the Clayton Act, id. § 14; and the Automobile Dealers Act, id. §§ 1221-1225. There are also counterclaims, cross-claims, and third party complaints arising out of notes and guaranties made by the plaintiff and its principals. At the close of a jury trial, the district court granted a directed verdict for the defendants on all of the plaintiff's claims. In a separate bench trial, the court granted judgment for the defendants on their counterclaims. On appeal, the plaintiff asserts several errors: (1) the district court abused its discretion in refusing to permit the plaintiff to amend its complaint; (2) the directed verdicts on the antitrust and Dealers Act charges were improper; (3) the trial judge improperly excluded certain testimony offered by the plaintiff; and (4) the judgment on the counterclaim was improper under Texas law. We affirm the judgment of the district court in all respects as to the plaintiff's antitrust and Dealers Act complaint. We remand the judgment on the claims for indebtedness, however, for a new determination of the amount of the award.

This case concerns the unhappy relationship between American Motors Corporation ("AMC"), a major auto manufacturer, and Bob Maxfield, Inc., one of AMC's retail dealers in the Houston area. 1 Maxfield opened business as an AMC dealer in March 1972. In May 1973 AMC terminated Maxfield's franchise and took over operation of the dealership.

Disputes with AMC marred Maxfield's tenure as a dealer almost from the start. 2 AMC provided Maxfield with an initial inventory of parts; Maxfield could return unneeded stock for full credit within 90 days. Maxfield alleges that AMC urged it to keep the parts for another 90 days, promising to take them back at the end of that time. AMC, it says, reneged on the promise. AMC denies having made the promise. Again, Maxfield alleges that AMC wrongfully delayed giving it permission to install certain lubricating equipment leased from another company.

By far the most important source of friction, however, was the problem of product mix in the line of cars AMC sold to Maxfield. During 1972 and 1973 AMC made two lines of small cars, the Gremlin and the Hornet. These models were very popular so much so that AMC suffered a nationwide supply shortage and rationed the cars among its dealers. At the same time, AMC's two models of large cars, the Ambassador and the Matador, were considerably less successful on the retail market. The heart of Maxfield's complaint is that AMC made it take large cars that it did not want and could not sell in order to obtain the small cars it needed. AMC, it alleges, made peremptory demands and used hard-sell salesmanship to get Maxfield to take the "full line" of AMC cars. AMC promised to take back unsold big cars and then broke the promise. Finally, when Maxfield refused to cooperate, allegedly, AMC retaliated by cutting back Maxfield's supply of small cars. AMC denies that there was any coercion, deceit, or discrimination.

I. Denial of Leave to File Third Amended Complaint

The original complaint and first amended complaint in this case were filed on July 24, 1973, and February 11, 1974, respectively. Both alleged the same antitrust violation: an illegal tie-in arrangement, in violation of section 1 of the Sherman Act and section 3 of the Clayton Act. The second amended complaint, filed November 7, 1975, added allegations of "full-line forcing", in violation of those same sections, and an attempt to monopolize through a dual distribution system, in violation of section 2 of the Sherman Act.

On April 7, 1977, about a month before the trial date and nearly four years after the commencement of the suit, Maxfield sought leave to file a third amended complaint, adding an allegation of illegal exclusive dealing. The basis for the new allegation was the provision in Maxfield's franchise agreement prohibiting it from obtaining a dealership from any other auto manufacturer.

The mere existence of an exclusive dealing clause in a contract does not establish an antitrust violation. As the Supreme Court has held,

(E)ven though a contract is found to be an exclusive dealing arrangement, it does not violate (section 3 of the Clayton Act) unless the court believes it probable that performance of the contract will foreclose competition in a substantial share of the line of commerce affected.

Tampa Electric Co. v. Nashville Coal Co., 1961, 365 U.S. 320, 327, 81 S.Ct. 623, 628, 5 L.Ed.2d 580, 586-87. To determine whether the foreclosed competition is "substantial", the court must look at "the relative strength of the parties, the proportionate volume of commerce involved in relation to the total volume of commerce in the relevant market area, and the probable immediate and future effects which pre-emption of that share of the market might have on effective competition therein". Id., 365 U.S. at 329, 81 S.Ct. at 629. The court must also determine the relevant line of commerce and geographic market. Id., 365 U.S. at 327-28, 81 S.Ct. at 627-28.

AMC opposed Maxfield's motion, pointing out that this was the first time in the suit that Maxfield had asserted any injury resulting from its inability to do business with other auto manufacturers. Because the proposed amendment was filed only one month before the trial, AMC had no opportunity to conduct discovery on any of the points mentioned in Tampa Electric. In particular, AMC had not undertaken any discovery as to whether Maxfield would have sought another dealership but for the franchise clause and, if so, whether it could have obtained one and at what cost. Yet if Maxfield were to show any effect on competition, it would have had to show at least some likelihood that it would have sought and obtained a dealership from one of AMC's competitors. In these circumstances, the district court did not abuse its discretion in refusing to allow the tardy amendment. Fed.R.Civ.P. 15(a); Zenith Radio Corp. v. Hazeltine Research, Inc., 1971, 401 U.S. 321, 330-31, 91 S.Ct. 795, 802, 28 L.Ed.2d 77, 87-88; Wealden Corp. v. Schwey, 5 Cir. 1973, 482 F.2d 550, 552; Nevels v. Ford Motor Co., 5 Cir. 1971, 439 F.2d 251, 257; Jones v. Metzger Dairies, 5 Cir. 1964, 334 F.2d 919, 925-26, cert. denied, 379 U.S. 965, 85 S.Ct. 659, 13 L.Ed.2d 559 (1965).

II. The Antitrust Directed Verdict

Maxfield's antitrust case relies on two theories: an illegal tie-in, in violation of section 1 of the Sherman Act, and an illegal full-line forcing policy, in violation of section 3 of the Clayton Act. 3 The two theories of liability are substantively synonymous. Heatransfer Corp. v. Volkswagenwerk, A.G., 5 Cir. 1977, 553 F.2d 964, 976, cert. denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d 792 (1978); L. Sullivan, Handbook of the Law of Antitrust § 153 (1977). We have said that an illegal tying arrangement has four characteristics:

(1) two separate products, the tying product and the tied product;

(2) sufficient market power in the tying market to coerce purchase of the tied product;

(3) involvement of a not insubstantial amount of interstate commerce in the tied market; and

(4) anticompetitive effects in the tied market.

Driskill v. Dallas Cowboys Football Club, Inc., 5 Cir. 1974, 498 F.2d 321, 323.

The trial judge properly granted AMC's motion for a directed verdict on this charge because Maxfield presented no evidence that AMC used any coercion to force it to accept Ambassadors and Matadors. We have held that actual coercion is an indispensable element of a tie-in charge. A manufacturer may use strong persuasion, encouragement, or cajolery to the point of obnoxiousness to induce his retailer to buy its full line of products. An antitrust violation occurs only if it goes beyond persuasion and coerces or forces its customer to buy the tied product in order to obtain the tying product. Ogden Food Service Corp. v. Mitchell, 5 Cir. 1980, 614 F.2d 1001, 1002; Response of Carolina, Inc. v. Leasco Response, Inc., 5 Cir. 1976, 537 F.2d 1307, 1327-28. 4

We cannot see any evidence that AMC coerced Maxfield into taking unwanted large cars. Viewing the record in the light most favorable to Maxfield, 5 we can see that AMC's representatives tried vigorously to sell big cars to Maxfield. On numerous occasions they "informed" Bob Maxfield or his sales manager of the numbers of each model they wanted Maxfield to buy. They "persuaded" or "encouraged" Maxfield to take the suggested number of big cars, and they sometimes became angry when it refused. On one occasion an AMC representative ordered Ambassadors on Maxfield's behalf, without its consent. (Maxfield refused delivery.) Another time a representative talked Maxfield into taking big cars by promising to "move them away" if they did not sell a promise not kept. AMC's policy was to persuade all of its dealers to take the full line, and there were strong job incentives for AMC management personnel to carry out that policy. What is entirely missing from this list of horrors, however, is any evidence that AMC ever...

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