Com-Tel, Inc. v. Dukane Corp.
| Decision Date | 28 January 1982 |
| Docket Number | COM-TE,INC,No. 79-3545,79-3545 |
| Citation | 669 F.2d 404 |
| Court | U.S. Court of Appeals — Sixth Circuit |
| Parties | 1982-1 Trade Cases 64,504 , Plaintiff-Appellee, v. DuKANE CORPORATION; and Central Sound Supply Company, Inc., Defendants-Appellants. |
Kenneth J. Tuggle, Brown, Todd & Heyburn, Louisville, Ky., for DuKane corp.
Richard D. Remmers, Handmaker, Weber & Meyer, Louisville, Ky., for Central Sound.
Edward M. Steutermann, Goldberg & Pedley, Jonathan D. Goldberg, Louisville, Ky., for plaintiff-appellee.
Before EDWARDS, Chief Circuit Judge; BROWN, Circuit Judge, and RICE, District Judge. *
This antitrust action was brought by Com-Tel, Inc. (Com-Tel) against co-defendants DuKane Corporation (DuKane) and Central Sound Supply Co., Inc. (Central Sound), alleging that they conspired to boycott the sale to Com-Tel of DuKane sound equipment in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (1976). The DuKane equipment was specified for the Western High School and Rockford Lane Middle School Project (Western-Rockford project), a project of the Jefferson County (Kentucky) Board of Education (Board).
This case was tried to a jury on Com-Tel's single theory that the co-defendants' conduct amounted to a per se violation of § 1 of the Sherman Act, and the district court charged the jury only as to such theory. The jury's verdict was in favor of Com-Tel, and the co-defendants appeal from the judgment entered on this verdict, contending that the evidence does not support a per se violation of § 1 and that the district court, Honorable Charles M. Allen, erred in charging the jury. We disagree and therefore affirm.
From the evidence, the jury could have within reason found the following facts:
Com-Tel and Central Sound are competitors in the field of installation of sound and telephone systems in the Louisville area. Central Sound is an independent DuKane franchise distributor; Com-Tel is not. Central Sound has a primary responsibility territory of Southern Indiana and Central Kentucky. A DuKane distributor is allowed to sell to a distributor or consumer outside its primary area, but under the franchise agreement, must pay a 10% commission to the DuKane distributor into whose area the sale is made.
One of DuKane's three divisions, the Communications Systems Division, markets sound systems for use in various institutions, including schools. It markets its products to independent franchise distributors, like Central Sound, who sell, install, and service the sound systems.
After the Board requested Arrow Electric Company to bid on the Western-Rockford project, Arrow in turn solicited Com-Tel's bid for the sound and television work. The bid specifications required DuKane sound equipment or comparable quality equipment. Com-Tel, a Bogen distributor, specified Bogen equipment in its original bid. This bid was rejected, as the Board decided that only DuKane equipment would be suitable. After receiving assurance from Eubanks Supply (Eubanks) in Corbin, Kentucky, that it could supply the necessary DuKane equipment, Com-Tel submitted a bid including this equipment, and its bid was accepted. On the other hand, the bid of Central Sound, which also included DuKane equipment, was not accepted.
Prior to obtaining the commitment from Eubanks, Com-Tel had attempted to obtain DuKane equipment from Central Sound. Kenneth Woolet of Central Sound refused to sell the DuKane equipment unless Central Sound was also allowed to install it. Woolet informed James Puckett of Com-Tel that Com-Tel would have a difficult time obtaining the DuKane equipment. Com-Tel eventually placed an order with Eubanks for the equipment and received part of that order.
After Com-Tel's bid was accepted by the Board, Woolet from Central Sound met with the project architects to inspect Com-Tel's bid. At this meeting Woolet made a list of all DuKane equipment to be used on the job. He eventually sent this list to Donald Causey, DuKane's regional manager. Woolet then enlisted the aid of Causey and Wayne Stephan, DuKane's general sales manager, in preenting Com-Tel's receipt of the DuKane equipment. Shortly thereafter Stephan sent a letter to Com-Tel suggesting that Com-Tel violated copyright law when it included DuKane equipment in its bid.
After part of the DuKane order from Eubanks was delivered, Woolet visited the Western-Rockford site to ascertain whether DuKane equipment had been placed on the job. Woolet discovered some DuKane equipment on the site and removed a label that revealed the name of the Lexington, Kentucky DuKane distributor that had sent the equipment, Ken Smith Company (Smith). (Ken Smith Company was Eubank's supplier.) Woolet complained to Causey that Smith was selling DuKane products into Central Sound's primary area.
Causey sent a letter to all distributors in his region and to all other regional managers stating that they should not sell to nonfranchise distributors. The letter noted that those that did sell to non-DuKane distributors would be considered "quislings." The letter stated that Causey, a regional manager, would meticulously search for orders involving "bootleg" sales to nonfranchise distributors. The letter also stated that Causey would encourage all other regional managers to do the same. Since the DuKane franchise agreements do not prohibit sales to nonfranchise distributors, even to those outside the primary area of responsibility, this letter was contrary to company policy; consequently, Stephan as general sales manager ordered Causey to rescind the letter.
Although Com-Tel had placed an order with Eubanks and had received partial shipment, because of Woolet's statement that DuKane products would be difficult to obtain, Com-Tel placed a second order with Clodi & Clodi Communications and Electronics, Inc. (Clodi). Clodi was a DuKane distributorship in Illinois from 1972 through 1976. It periodically sold DuKane products outside its primary area of responsibility and to non-DuKane distributors. During this period it had had many credit problems with DuKane. Although it consistently owed DuKane money for past sales, various arrangements were made so that Clodi could continue to obtain DuKane products. Prior to the Com-Tel order, DuKane never required from Clodi more than cash on delivery plus 20% of the current arrearage.
After the Com-Tel order was placed, Clodi was ordered to meet with Stephan and its regional manager, Norman Hageman. Dennis Clodi was warned at this meeting that if Clodi sold DuKane products to Com-Tel its franchise agreement might be terminated.
Other pressure besides the threat of franchise termination was applied by DuKane. When the Clodi order for Com-Tel was processed, Clodi was forced to disclose to DuKane's credit manager that Com-Tel had ordered the equipment. After consulting with Stephan, the credit manager wrote on the shipping order, "Hold to cash" was defined by the credit manager as cash on delivery plus the total amount of current arrearage owed by Clodi. Clodi was unable to meet this condition, which was much more onerous than the 20% payment of arrearage usually required.
Clodi was encouraged by DuKane to seek a financial payment from Central Sound for not selling to Com-Tel. Clodi, however, offered to pay Central Sound the 10% commission fee usually paid when a franchise distributor sells into another's primary area. Woolet of Central Sound declined the offer, noting that he wanted the whole job. After receiving a letter from Hageman which inquired whether Clodi still desired to sell outside its primary area, Clodi withdrew the Com-Tel order.
DuKane was also applying its leverage on another front. Com-Tel still hoped to fulfill its contract through its Eubanks/Smith connection. However, at the time the Com-Tel order was placed, Smith was undergoing a management change due to the death of its owner. Elmer Lovings was attempting to purchase the company and negotiate the renewal of the DuKane franchise. Causey discussed the Com-Tel sale with Lovings and requested that he not sell outside his territory, and Lovings agreed to comply with this request.
Unable to obtain the necessary DuKane equipment, Com-Tel resigned from the project and assigned its rights to Central Sound. Com-Tel subsequently filed this antitrust action against DuKane and Central Sound in the United States District Court for the Western District of Kentucky, alleging a per se violation of § 1 of the Sherman Act, that is, a group boycott and concerted refusal to deal. After a jury trial, the defendants were found in violation of § 1, and Com-Tel's losses of $20,900 were trebled to result in a damages award of $62,700. Both DuKane and Central Sound have appealed that judgment.
Com-Tel chose to rely upon its group boycott theory because of the impact of Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977), which reinstated the rule of reason for evaluating vertically imposed distribution restraints. It is undisputed that this case was tried only on the theory that the conduct of DuKane and Central Sound constituted a per se violation of § 1 of the Sherman Act; consequently, the judgment against DuKane and Central Sound can be upheld only if the evidence supports a per se violation.
Section 1 of the Sherman Act proscribes "(e)very contract, combination ... or conspiracy, in restraint of trade or commerce ...." 1 The Supreme Court formulated the "rule of reason" in Standard Oil Company of New Jersey v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911), to prohibit unreasonable restraints of trade. Although this rule of reason is characterized as the rule "generally applied in Sherman Act cases," 2 the Court has targeted certain types of market behavior and deemed them "conclusively...
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