Callahan v. A.E.V. Inc.

• Decision Date: 25 March 1999
• Docket Number: BREW-THR,INC
• Citation: 182 F.3d 237
• Parties: (3rd Cir. 1999) MICHAEL W. CALLAHAN; PERRY BEER INC.; PETER G. PETOUSIS; NORMAN BERNARDI; KATHLEEN A. KAPRES; PETE'S BEER INC.; LISA MARTIN; ANTHONY SANTAGUIDA; THOMAS SANTAGUIDA; A. L. ABROMOVITZ; CARL N. ALTENHOF; DOUGLAS J. BERTHOLD;; ALLEN E. BRAUN; SPIKE'S BEER DISTRIBUTOR, INC.; DINO A. DEFLAVIO; CAROLE A. DEMARCO; FRED DEMSHER; E & C PRICE DISTRIBUTING, INC.; FRISCH DISTRIBUTING CO. INC.; SARA J. KELLY; MARY LOU LIBELL; THE BEER WAREHOUSE; ARMANDO NOVELLI; MARTIN P. PEKOR; T.C. VALLEY BEER & POP COMPANY, INC.; LORETTA J. PERRI; GREEN VALLEY DISTRIBUTING CO., INC.; MARYANNE SANTAGUIDA; INGEBORG G. SCHINDLER; DENNIS SENNEWAY; MICHAEL T. VOELKER; VOELKER DISTRIBUTING, INC., APPELLANTS v. A.E.V., INC., A CORPORATION; BEER AND POP WAREHOUSE, INC., A CORPORATION; BRANDT DISTRIBUTORS OF PITTSBURGH, A CORPORATION; EARL BRANDT, AN INDIVIDUAL; FRANK B. FUHRER WHOLESALE COMPANY, A CORPORATION; FRANK B. FUHRER, JR., AN INDIVIDUAL; JET DISTRIBUTORS, INC., A CORPORATION; ALFRED M. LUTHERAN DISTRIBUTORS, INC., A CORPORATION; JAMES LUTHERAN, AN INDIVIDUAL; Q.F.A., INC., A CORPORATION; RED SKY, INC., A CORPORATION; RETAIL SERVICES AND SYSTEMS, INC., A CORPORATION; DAVID J. TRONE, AN INDIVIDUAL NO. 98-3456 Argued:
• Court: U.S. Court of Appeals — Third Circuit

Page 237

182 F.3d 237 (3rd Cir. 1999)

MICHAEL W. CALLAHAN; PERRY BEER INC.; PETER G. PETOUSIS; NORMAN BERNARDI; KATHLEEN A. KAPRES; PETE'S BEER INC.; LISA MARTIN; ANTHONY SANTAGUIDA; THOMAS SANTAGUIDA; A. L. ABROMOVITZ; CARL N. ALTENHOF; DOUGLAS J. BERTHOLD; BREW-THRU, INC.; ALLEN E. BRAUN; SPIKE'S BEER DISTRIBUTOR, INC.; DINO A. DEFLAVIO; CAROLE A. DEMARCO; FRED DEMSHER; E & C

PRICE DISTRIBUTING, INC.; FRISCH DISTRIBUTING CO. INC.; SARA J. KELLY; MARY LOU LIBELL; THE BEER WAREHOUSE; ARMANDO NOVELLI; MARTIN P. PEKOR; T.C. VALLEY BEER & POP COMPANY, INC.; LORETTA J. PERRI; GREEN VALLEY DISTRIBUTING CO., INC.; MARYANNE SANTAGUIDA; INGEBORG G. SCHINDLER; DENNIS SENNEWAY; MICHAEL T. VOELKER; VOELKER DISTRIBUTING, INC., APPELLANTS v. A.E.V., INC., A CORPORATION; BEER AND POP WAREHOUSE, INC., A CORPORATION; BRANDT DISTRIBUTORS OF PITTSBURGH, A CORPORATION; EARL BRANDT, AN INDIVIDUAL; FRANK B. FUHRER WHOLESALE COMPANY, A CORPORATION; FRANK B. FUHRER, JR., AN INDIVIDUAL; JET DISTRIBUTORS, INC., A CORPORATION; ALFRED M. LUTHERAN DISTRIBUTORS, INC., A CORPORATION; JAMES LUTHERAN, AN INDIVIDUAL; Q.F.A., INC., A CORPORATION; RED SKY, INC., A CORPORATION; RETAIL SERVICES AND SYSTEMS, INC., A CORPORATION; DAVID J. TRONE, AN INDIVIDUAL

NO. 98-3456

U.S. Court of Appeals, Third Circuit

Argued: March 25, 1999

Filed June 30, 1999

On Appeal From the United States District Court For the Western District of Pennsylvania (D.C. Civ. No. 92-cv-00556) H. Laddie Montague, Jr., Esquire Jerome M. Marcus, Esquire (argued) Bart D. Cohen, Esquire Berger & Montague, P.C. 1622 Locust Street Philadelphia, PA 19103 Counsel for Appellants

Roslyn M. Litman, Esquire (argued) Martha S. Helmreich, Esquire Litman, Litman, Harris and Brown, P.C. 3600 One Oxford Centre Pittsburgh, PA 15219 Counsel for Appellees A.e.v., Inc.; Beer & Pop Warehouse, Inc.; Jet Distributors, Inc.; Q.f.a., Inc.; Red Sky, Inc.; Retail Services and Systems, Inc.; David J. Trone

Michael Yablonski, Esquire (argued) Meyer, Unkovic & Scott, Llp 1300 Oliver Building Pittsburgh, PA 15222 Counsel for Appellees Frank B. Fuhrer Wholesale Company and Frank B. Fuhrer, Jr.

Before: Becker, Chief Judge, Lewis and WELLFORD,^* Circuit Judges.

OPINION OF THE COURT

Becker, Chief Judge:

Prior to 1985, the retail sale of beer in the Pittsburgh area was conducted exclusively by "mom and pop"-type beer distributorships, such as those operated by plaintiff Michael W. Callahan and his fifteen co-plaintiffs. In that year, defendant David Trone opened the first "Beer World" store, a supermarket-style beer distributorship ten times the size of the traditional stores. He opened four more such stores in the Pittsburgh area between 1986 and 1988, offering a larger selection and lower prices. This case involves antitrust and RICO claims arising out of the manner in which Trone operated these stores.

The Pennsylvania Liquor Code limits the ability of one entrepreneur to own or operate more than one beer distributorship. Trone apparently evaded these restrictions by placing the Beer World stores in the names of others, and, while acting as a "consultant," effectively running the stores himself. According to the plaintiffs, Trone deceived the Pennsylvania Liquor Control Board (LCB) as to the true state of affairs by filing of false statements and affidavits.

Trone negotiated purchases of beer from wholesalers for all of the Beer World stores collectively. By doing so, the stores were able to purchase at a wholesale price lower than they would have been able to obtain in individual purchases. Central to this case are Trone's negotiations with defendant Frank Fuhrer, the master distributor in the Pittsburgh area for Anheuser-Busch and Coors, in the course of which Trone allegedly forced Fuhrer to agree to give a quantity discount to the Beer World stores based on their purchases as a group, but not to give this discount to any other retailers.¹ Trone is said to have been able to do this because the Beer World stores held a substantial portion (at least 25%) of the Pittsburgh beer market, and because he threatened to place Fuhrer's products poorly within the stores. The Beer World stores allegedly received this discount even though their orders in the aggregate did not always reach the 4500-case level Fuhrer set for the discount. According to the plaintiffs, this discount was not disclosed to anyone else; it was not included on Fuhrer's ordinary price list and was excluded from loading sheets posted at Fuhrer's distribution center. Not surprisingly, the Beer World stores' advantage in pricing, as well as other areas, cut sharply into the business of the smaller stores.

This state of affairs has spawned this unusual antitrust and civil RICO case with state tort law claims appended, brought by the plaintiffs against Trone, the Beer World stores, and Fuhrer.² The plaintiffs' antitrust theory is that Trone, his employees, and the separately incorporated stores have contracted, combined and conspired to restrain trade in beer in Allegheny County, by confronting wholesalers as a group and using their buying power and the threats described above to force the wholesalers to sell them beer at a price lower than that available to other retailers. The plaintiffs' RICO theory is that Trone and others, by submitting false statements and affidavits to the LCB, as well as lying to a grand jury to cover up these false statements, were able to maintain illegal consolidated control of the Beer World stores. The plaintiffs submit that, as a result of this control, Trone and the Beer World stores obtained the advantages that enabled them to sell beer at prices below that of the plaintiffs. Although in a free market, these different approaches to operating a beer distributorship might not seem to offer grounds for a federal antitrust or civil RICO suit, in the context of Pennsylvania's detailed malt and brewed beverages regulatory scheme, the plaintiffs have found grounds for a lawsuit.

The District Court granted summary judgment for the defendants on all claims, including both the state tort law claims and the federal claims, and the plaintiffs have appealed. Strangely, antitrust liability issues are not presented in this appeal. The District Court, in deciding the defendants' motion for summary judgment, did not consider antitrust liability issues at all; rather, the District Court disposed of the antitrust and RICO claims on the ground that the plaintiffs had not produced sufficient evidence that they suffered actual losses that were in fact a result of the defendants' actions. Accordingly, and given the incomplete state of the record as presented to us by the parties, we do not intend to engage in an examination of the nature and scope of the plaintiffs' theory or proof of antitrust violations (and, consequently, we express no view as to their correctness). Instead, we will assume, for the purposes of this appeal, that the plaintiffs can offer sufficient proof that the defendants engaged in antitrust violations throughout the relevant time periods. We will accordingly concentrate on the issues -- actual loss and causation in fact (termed "fact of damage") with respect to the antitrust claims, and proximate causation with respect to the RICO claim -- that are fairly presented by this appeal.

In order to prove that the plaintiffs suffered losses and that the defendants' antitrust violations caused the injuries as a matter of fact, the plaintiffs offered (1) testimony that various customers no longer came to their stores and that the customers explained that this was because the Beer World stores offered cheaper prices, along with (2) the report of an expert who opined that the defendants' actions had caused harm to the plaintiffs. The defendants contend that this evidence is insufficient to meet the plaintiffs' burden of production. They first submit that the plaintiffs' anecdotal evidence is inadmissible hearsay on which the plaintiffs cannot rely. We disagree. The plaintiffs themselves can testify that the customers are in fact no longer shopping at their stores. Furthermore, although the reports of the customers' statements are hearsay, they are admissible as evidence of the customers' states of mind, i.e., their reasons for no longer shopping at the plaintiffs' stores. This combined evidence is sufficient to meet the plaintiffs' burden of producing enough evidence of loss and causation with respect to the plaintiffs' antitrust claims to overcome a motion for summary judgment.

Also on the antitrust issues, the defendants argue that the plaintiffs' proffered expert testimony is inadequate to prove fact of injury and causation because, inter alia, the expert failed to discuss numerous other possible causes of the plaintiffs' losses. Furthermore, the defendants challenge the expert's methodology for estimating the amount of damages. In spite of these flaws, we conclude that the expert's testimony is sufficient to meet the plaintiffs' burden of proof. At all events -- taking into consideration both the customer evidence and the expert reports-- we believe that the District Court erred in dismissing the plaintiffs' antitrust claims on the ground that there was inadequate proof of fact of injury and causation in fact.

With respect to the RICO claim, the defendants contend that the alleged causal connection between the defendants' fraud and the plaintiffs' losses is not sufficiently close to meet the requirement of proximate causation. The plaintiffs' RICO claim runs as follows: If Trone and others associated with the Beer World stores had not defrauded the Pennsylvania Liquor Control Board by submitting sworn statements that Trone did not own and control all of the stores, the Liquor Control Board would have put Trone out of business. Since he stayed in business, Trone was able to use his control of several stores to obtain volume discounts by buying for the stores in the aggregate. The plaintiffs were then...