Brunswick Corporation v. Pueblo

• Decision Date: 25 January 1977
• Docket Number: INC,No. 75-904,BOWL-O-MA,75-904
• Parties: BRUNSWICK CORPORATION, Petitioner, v. PUEBLO, et al
• Court: U.S. Supreme Court

429 U.S. 477

97 S.Ct. 690

50 L.Ed.2d 701

BRUNSWICK CORPORATION, Petitioner,

v PUEBLO BOWL-O-MAT, INC., et al.

No. 75-904.

Argued Nov. 3, 1976.

Decided Jan. 25, 1977.

Syllabus

Respondents, bowling centers in three distinct markets, brought this antitrust action against petitioner, one of the two largest bowling equipment manufacturers and the largest operator of bowling centers, claiming that petitioner's acquisitions of competing bowling centers that had defaulted in payments for bowling equipment that they had purchased from petitioner might substantially lessen competition or tend to create a monopoly in violation of § 7 of the Clayton Act. Respondents sought treble damages pursuant to § 4 of the Act as well as injunctive and other relief. At trial they sought to prove that petitioner because of its size had the capacity to lessen competition in the markets it had entered by driving smaller competitors out of business. To establish damages, respondents attempted to show that had petitioner allowed the defaulting centers to close, respondents' profits would have increased. The jury returned a verdict for damages in favor of respondents, which the District Court trebled in accordance with § 4. The Court of Appeals, while endorsing the legal theories upon which respondents' claim was based, reversed the case and remanded for further proceedings because of errors in the trial court's instructions to the jury. The court concluded that a properly instructed jury could have found that a "giant" like petitioner entering a market of "pygmies" might lessen horizontal retail competition. The court also concluded that there was sufficient evidence to permit a jury to find that but for petitioner's actions, the acquired centers would have gone out of business. The court held that if a jury were to make such findings, respondents would be entitled to damages for threefold the income they would have earned. Petitioner's petition for certiorari challenged the theory that the Court of Appeals had approved for awarding damages. Held:

1. For plaintiffs in an antitrust action to recover treble damages on account of § 7 violations, they must prove more than that they suffered injury which was causally linked to an illegal presence in the market; they must prove injury of the type that the antitrust laws were intended to prevent and that flows from that which makes the defendants' acts unlawful. The injury must reflect the anticompetitive effect of either the violation or of anticompetitive acts made possible by the violation. Pp. 484-489.

(a) Section 4 is essentially a remedial provision, and to recover damages respondents must prove more than that petitioner violated § 7. Pp. 485-487.

(b) Congress has condemned mergers only when they may produce anticompetitive effects; yet under the Court of Appeals' holding, once a merger is found to violate § 7, all dislocations that the merger caused are actionable regardless of whether the dislocations have anything to do with the reason the merger was condemned. Here if the acquisitions were unlawful it is because they brought a "deep pocket" parent into a market of "pygmies," but respondents' injury is unrelated to the size of either the acquiring company or its competitors; it would have suffered the identical loss but without any recourse had the acquired centers secured refinancing or had they been bought by a "shallow pocket" parent. Pp. 487-488.

2. Petitioner is entitled under Fed.Rule Civ.Proc. 50(b) to judgment on the damages claim notwithstanding the verdict, since respondents' case was based solely on their novel theory, rejected herein, of damages ascribable to profits they would have received had the acquired centers been closed, and since respondents have not shown any reason to require a new trial. P. 489-490.

3. Respondents remain free on remand to seek equitable relief. P. 491.

3 Cir., 523 F.2d 262, vacated and remanded.

Bernard G. Segal, Philadelphia, Pa., for petitioner.

Malcolm A. Hoffmann, New York City, for respondents.

Mr. Justice MARSHALL delivered the opinion of the Court.

This case raises important questions concerning the interrelationship of the antimerger and private damages action provisions of the Clayton Antitrust Act.

I

Petitioner is one of the two largest manufacturers of bowling equipment in the United States. Respondents are three of the 10 bowling centers owned by Treadway Companies, Inc. Since 1965, petitioner has acquired and operated a large number of bowling centers, including six in the markets in which respondents operate. Respondents instituted this action contending that these acquisitions violated various provisions of the antitrust laws.

In the late 1950's, the bowling industry expanded rapidly, and petitioner's sales of lanes, automatic pinsetters, and ancillary equipment rose accordingly. ¹ Since this equipment requires a major capital expenditure $12,600 for each lane and pinsetter, App. A1576 most of petitioner's sales were for secured credit.

In the early 1960's, the bowling industry went into a sharp decline. Petitioner's sales quickly dropped to preboom levels. Moreover, petitioner experienced great difficulty in collecting money owed it; by the end of 1964 over $100,000,000, or more than 25%, of petitioner's accounts were more than 90 days delinquent. Id., at A1884. Repossessions rose dramatically, but attempts to sell or lease the repossessed equipment met with only limited success.² Because petitioner had borrowed close to $250,000,000 to finance its credit sales, id., at A1900, it was, as the Court of Appeals concluded, "in serious financial difficulty." NBO Industries Treadway Cos., Inc. v. Brunswick Corp., 523 F.2d 262, 267 (CA3 1975).

To meet this difficulty, petitioner began acquiring and operating defaulting bowling centers when their equipment could not be resold and a positive cash flow could be expected from operating the centers. During the seven years preceding the trial in this case, petitioner acquired 222 centers, 54 of which it either disposed of or closed. Ibid. These acquisitions made petitioner by far the largest operator of bowling centers, with over five times as many centers as its next largest competitor. Ibid. Petitioner's net worth in 1965 was more than eight times greater, and its gross revenue more than seven times greater, than the total for the 11 next largest bowling chains. App. A1675. Nevertheless, petitioner controlled only 2% of the bowling centers in the United States. Id., at A1096.

At issue here are acquisitions by petitioner in the three markets in which respondents are located: Pueblo, Colo., Poughkeepsie, N. Y., and Paramus, N. J. In 1965, petitioner acquired one defaulting center in Pueblo, one in Poughkeepsie, and two in the Paramus area. In 1969, petitioner acquired a third defaulting center in the Paramus market, and in 1970 petitioner acquired a fourth. Petitioner closed its Poughkeepsie center in 1969 after three years of unsuccessful operation; the Paramus center acquired in 1970 also proved unsuccessful, and in March 1973 petitioner gave notice that it would cease operating the center when its lease expired. The other four centers were operational at the time of trial.

Respondents initiated this action in June 1966, alleging, inter alia, that these acquisitions might substantially lessen competition or tend to create a monopoly in violation of § 7 of the Clayton Act, 15 U.S.C. § 18.³ Respondents sought damages, pursuant to § 4 of the Act, 15 U.S.C. § 15, for three times "the reasonably expectable profits to be made (by respondents) from the operation of their bowling centers." App. A24. Respondents also sought a divestiture order, an injunction against future acquisitions, and such "other further and different relief" as might be appropriate under § 16 of the Act, 15 U.S.C. § 26. App. A27.

Trial was held in the spring of 1973, following an initial mistrial due to a hung jury. To establish a § 7 violation, respondents sought to prove that because of its size, petitioner had the capacity to lessen competition in the markets it had entered by driving smaller competitors out of business. To establish damages, respondents attempted to show that had petitioner allowed the defaulting centers to close, respondents' profits would have increased. At respondents' request, the jury was instructed in accord with respondents' theory as to the nature of the violation and the basis for damages. The jury returned a verdict in favor of respondents in the amount of $2,358,030, which represented the minimum estimate by respondents of the additional income they would have realized had the acquired centers been closed. Id., at A1737. As required by law, the District Court trebled the damages.⁴ It also awarded respondents costs and attorneys' fees totaling $446,977.32, and, sitting as a court of equity, it ordered petitioner to divest itself of the centers involved here, Treadway Cos. v. Brunswick Corp., 389 F.Supp. 996 (N.J.1974). Petitioner appealed.⁵

The Court of Appeals, while endorsing the legal theories upon which respondents' claim was based, reversed the judgment and remanded the case for further proceedings. NBO Industries Treadway Cos. v. Brunswick Corp., supra. The court found that a properly instructed jury could have concluded that petitioner was a "giant" whose entry into a "market of pygmies" might lessen horizontal retail competition, because such a "giant"

"has greater ease of entry into the market, can accomplish cost-savings by investing in new equipment, can resort to low or below cost sales to sustain itself against competition for a longer period, and can obtain more favorable credit terms." 523 F.2d, at 268.

The court also found that there was sufficient evidence to permit a jury to conclude that but for petitioner's actions, the acquired centers would have gone out of business. Id at 273, 275-277. And the court held that if a jury were to make such...