Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp.

• Decision Date: 06 November 1995
• Docket Number: No. 95-1460,95-1460
• Citation: Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 79 F.3d 182 (1st Cir. 1995)
• Parties: 1996-1 Trade Cases P 71,335, 34 Fed.R.Serv.3d 622 COASTAL FUELS OF PUERTO RICO, INC., Plaintiff--Appellee, v. CARIBBEAN PETROLEUM CORPORATION, Defendant--Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 182

79 F.3d 182

1996-1 Trade Cases P 71,335, 34 Fed.R.Serv.3d 622

COASTAL FUELS OF PUERTO RICO, INC., Plaintiff--Appellee, v. CARIBBEAN PETROLEUM CORPORATION, Defendant--Appellant.

No. 95-1460.

United States Court of Appeals First Circuit.

Heard Nov. 6, 1995.

Decided March 12, 1996.

Appeal from the United States District Court for the District of Puerto Rico; Juan M. Perez-Gimenez, U.S. District Judge.

William L. Patton, with whom Thomas B. Smith, Kenneth A. Galton, Ropes & Gray, Boston, MA, Ruben T. Nigaglioni and Ledesma, Palou & Miranda, Hato Rey, PR, were on brief for appellant.

Michael S. Yauch, with whom Neil O. Bowman, Roberto Boneta, Houston, TX, and Munoz Boneta Gonzalez Arbona Benitez & Peral, Hato Rey, PR, were on brief for appellee.

Before TORRUELLA, Chief Judge, WATSON, ^* Senior Judge, and LYNCH, Circuit Judge.

TORRUELLA, Chief Judge.

This appeal involves claims of price discrimination, 15 U.S.C. § 13(a) (1994); 10 L.P.R.A. § 263 (1976), monopolization, 15 U.S.C. § 2 (1994); 10 L.P.R.A. § 260 (1976), and Puerto Rico law tort, 31 L.P.R.A. § 5141 (1976), brought against appellant Caribbean Petroleum Corp. by appellee Coastal Fuels of Puerto Rico, Inc. After a jury trial, the district court entered judgment for $5,000,000--$1.5 million in antitrust damages trebled plus $500,000 in tort damages. CAPECO seeks that the judgment of the district court be reversed and judgment be granted to CAPECO on all counts, or alternatively, that the judgment be reversed and the case remanded for a new trial. We affirm the price discrimination and Puerto Rico law tort verdicts, as well as the tort damage verdict. However, we reverse the monopolization verdict, vacate the antitrust damages verdict, and accordingly remand for further proceedings on price discrimination damages.

BACKGROUND

We relate the evidentiary background in the light most favorable to the jury verdicts. See Kerr-Selgas v. American Airlines, Inc., 69 F.3d 1205, 1206 (1st Cir.1995).

Coastal Fuels of Puerto Rico, Inc. ("Coastal") was formed in 1989 as a wholly-owned subsidiary of Coastal Fuels Marketing, Inc. ("CFMI"), a company that ran marine fuel operations in numerous ports using a staff of sales agents in Miami, Florida. Caribbean Petroleum Corp. ("CAPECO") owns and operates a refinery in Bayamon, Puerto Rico, which produces a number of fuel products, as well as residual fuel. A principal use of residual fuel is in the production of "bunker fuel," which is used by cruise ships and other ocean-going vessels outfitted with internal combustion or steam engines.

At trial, Coastal introduced testimony and letters showing that CAPECO had committed to supply Coastal on the same terms and conditions as other resellers in San Juan, Puerto Rico, in 1990, but Coastal deferred the start of its operations because of uncertainty due to the Gulf War. Eventually, Coastal began business operations in Puerto Rico in October 1991, buying bunker fuel in San Juan and reselling it to ocean-going liners at berth in San Juan Harbor. Based on CFMI's experience and reputation, Coastal produced a business plan which shows that it expected to reach a sales volume of 100,000 barrels a month, approximately 25-30% of the sales volume in San Juan Harbor. The plan also shows that Coastal assumed it could obtain an average gross margin (sales revenues less product costs) of $1.65 a barrel.

In September 1991, CAPECO agreed to charge Coastal prices based on a formula involving the previous Thursday/Friday New York market postings, minus discounts that varied by volume. These prices were to cover the six month period from October 1991 to March 1992. Unknown to Coastal, CAPECO was almost simultaneously offering Coastal's two competitors in San Juan Harbor, Caribbean Fuel Oil Trading, Inc. ("Caribbean") and Harbor Fuel Services, Inc. ("Harbor"), new contracts that gave Caribbean and Harbor bigger discounts from the formula price than Coastal received. ¹ Trial evidence introduced by CAPECO's own expert witness quantified the total price discrimination in favor of Caribbean and Harbor as $682,451.78 for the period from October 1991 to April 1992.

Coastal filed this suit in May of 1992 when it learned of CAPECO's price discrimination against it. This court affirmed the district court's denial of a preliminary injunction requiring that CAPECO end its price discrimination. See Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 990 F.2d 25, 26 (1st Cir.1993). After Coastal filed suit, CAPECO proposed a new price formula to Coastal. According to trial testimony introduced by Coastal, CAPECO basically made a "take it or leave it" offer, which Coastal took. Expert testimony Coastal offered at trial contended that competitively significant price discrimination continued until Spring of 1993, when CAPECO cut Coastal off entirely.

Additionally, Coastal presented evidence that, while throughout this period CAPECO would from time to time inform Coastal that it had no fuel available, in fact, CAPECO had available fuel. Coastal also presented evidence that it was discriminated against in terms of the quality of fuel that it received from CAPECO. Finally, on March 31, 1993, CAPECO informed Coastal in writing that it would not sell any more product to Coastal, and shortly thereafter, Coastal went out of business.

The case was tried to a jury on claims (1) that CAPECO discriminated in price in violation of Section 2(a) of the Clayton Act, 38 Stat. 730 (1914) (current version at 15 U.S.C. § 13(a)), as amended by the Robinson-Patman Act, 49 Stat. 1526 (1936), and in violation of Section 263(a) of Title 10 of the Laws of Puerto Rico; (2) that CAPECO monopolized trade or commerce in violation of Section 2 of the Sherman Act and Section 260 of Title 10 of the Laws of Puerto Rico; (3) that CAPECO violated Section 5141 of Title 31 of the Puerto Rico Civil Code by engaging in tortious conduct that injured Coastal; and (4) that CAPECO committed a breach of contract in violation of Sections 3371 et seq. of Title 31 of the Puerto Rico Civil Code. As reflected in the jury's answers to the Special Interrogatories, the jury found for Coastal on the first three of these claims, but found for CAPECO on the breach of contract claim. The jury awarded damages of $1,500,000 for the antitrust violations combined and $500,000 for the Puerto Rico tort violation. The antitrust damages were trebled, see 15 U.S.C. § 15(a), bringing the total award to $5,000,000.

DISCUSSION

CAPECO argues for a reversal of the district court's judgment, or alternatively, for a new trial. We address the arguments for reversal first.

I. Arguments for Reversal

The first set of issues involves the district court's denial of CAPECO's motions for judgment as a matter of law under Fed.R.Civ.P. 50. With respect to matters of law, our review is de novo. Sandy River Nursing Care v. Aetna Casualty, 985 F.2d 1138, 1141 (1st Cir.1993).

Seeking judgment as a matter of law, CAPECO has raised a set of issues on appeal that concern the application of federal and Puerto Rico law on price discrimination and monopoly, as well as Puerto Rico tort law, to the facts of this case. With respect to these issues, we review the court's decision de novo, using the same stringent decisional standards that controlled the district court. See Sullivan v. National Football League, 34 F.3d 1091, 1096 (1st Cir.1994); Gallagher v. Wilton Enterprises, Inc., 962 F.2d 120, 125 (1st Cir.1992). Under these standards, judgment for CAPECO can only be ordered if the evidence, viewed in the light most favorable to Coastal, points so strongly and overwhelmingly in favor of CAPECO, that a reasonable jury could not have arrived at a verdict for Coastal. See Sullivan, 34 F.3d at 1096; Gallagher, 962 F.2d at 124-25.

A. Price Discrimination

Section 2(a) of the Clayton Act, amended in 1936 by the Robinson-Patman Act, makes it

unlawful for any person ... to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, ... where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination....

15 U.S.C. § 13(a). A pair of sales at different prices makes out a prima facie case. See Falls City Indus., Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 444 n. 10, 103 S.Ct. 1282, 1293 n. 10, 75 L.Ed.2d 174 (1983); FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 549, 80 S.Ct. 1267, 1274, 4 L.Ed.2d 1385 (1960) ("[A] price discrimination within the meaning of [the statute] is merely a price difference.").

Section 2(a) includes two offenses that differ substantially, but are covered by the same statutory language. A "primary-line" violation occurs where the discriminating seller's price discrimination adversely impacts competition with the seller's direct competitors. See, e.g., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 219-21, 113 S.Ct. 2578, 2586, 125 L.Ed.2d 168, reh'g denied, --- U.S. ----, 114 S.Ct. 13, 125 L.Ed.2d 765 (1993). See generally Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and its Practice § 8.8 (1994). In contrast, a "secondary-line" violation occurs where the discriminating seller's price discrimination injures competition among his customers, that is, purchasers from the seller. See, e.g., FTC v. Sun Oil Co., 371 U.S. 505, 519, 83 S.Ct. 358, 366, 9 L.Ed.2d 466 (1963); Caribe BMW, Inc. v. Bayerische Motoren Werke, A.G., 19 F.3d 745, 748 (1st Cir.1994); J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1535-38 (3d Cir.1990), cert. denied, 499 U.S. 921, 111 S.Ct. 1313, 113 L.Ed.2d 246 (1991). See generally Hovenkamp § 14.6. The theory of injury is generally that the defendant's lower...