Crown Paint Co. v. Bankston, s. 53060

• Decision Date: 22 September 1981
• Docket Number: 53428,Nos. 53060,s. 53060
• Citation: 1981 OK 104,640 P.2d 948
• Parties: 1981-2 Trade Cases P 64,304, 1981 OK 104 CROWN PAINT COMPANY, Appellant, v. George BANKSTON, Jr., Appellee.
• Court: Oklahoma Supreme Court

Page 948

640 P.2d 948

1981-2 Trade Cases P 64,304, 1981 OK 104

CROWN PAINT COMPANY, Appellant, v. George BANKSTON, Jr., Appellee.

Nos. 53060, 53428.

Supreme Court of Oklahoma.

Sept. 22, 1981.

Rehearing Denied Oct. 29, 1981.

Certiorari Denied Feb. 22, 1982.

See 102 S.Ct. 1444.

Appeal from the District Court of Oklahoma County, David M. Cook, judge.

In this case, we are asked to determine whether a contract between the manufacturer of paint and a retailer of paint, in which they agreed not to compete on the retail level, was a per se violation of 79 O.S. § 1 (1971), and/or a violation of 15 O.S. § 217. The precise issue before the Court is whether the trial court erred in failing to grant summary judgment, directed verdict, or judgment notwithstanding the verdict in favor of the paint manufacturer, whose position was that the alleged agreement was, under the above cited statutes, void and unenforceable.

Finding that the agreement before us does not constitute a violation under either 79 O.S. § 1 or 15 O.S. § 217, we affirm the trial court's ruling, as Appellant failed to present any evidence showing an illegal scheme, or unreasonable restraint in a given market.

AFFIRMED.

Bryce A. Baggett, Oklahoma City, for appellant.

Michael Gassaway of Miskovsky & Gassaway, Oklahoma City, for appellee.

BARNES, Vice Chief Justice:

I.

In 1973, after many years of experience in the paint business, George Bankston opened his own paint supply company, Professional Paint Supply, as the sole proprietor. In that business, Mr. Bankston purchased paint from manufacturers, then resold it to his clients, who were the ultimate users of the paint and the paint-related products. In an effort to insure that he would have a continuous supply of paint for resale, Bankston entered into a contract with Crown Paint Company, a manufacturer/wholesaler and retailer of paint and related products. In entering into this contract, Mr. Bankston, seeking to protect his business, indicated to the president of Crown that he wanted Crown to agree that Crown would not call on anybody Bankston was selling Crown products to, and that if Crown ever found out that it was selling to one of Bankston's customers, Crown would back out. Crown's president stated that it was Crown's policy not to attempt to sell to customers of those Crown sold to at wholesale, saying that if Bankston would make a list of his customers to whom Crown paint was going to be resold, Crown would not call on them or sell paint to them. Bankston, seeking further to protect himself, chose not to disclose the name of his customers. Ultimately, Crown, acting in its retail capacity, did call upon and sell paint to Bankston's largest customer, CMI Corporation.

The controversy before us began when Crown filed a suit on an open account against Bankston, seeking to collect payment for paint sold to Bankston. Mr. Bankston filed a counterclaim alleging Crown's breach of their contract agreement not to compete. Crown received a summary judgment on its open account; no appeal was perfected from that judgment. After a series of continuances and mistrials, Bankston's action for breach of contract was submitted to a jury, which entered a judgment in favor of Bankston, fixing damages at $67,259.97.

Crown has perfected an appeal from that verdict and judgment (Case No. 53,060). Additionally, Crown perfected an appeal from the subsequent trial court order awarding attorney fees in the cause (Case No. 53,428). By prior order of this Court, these appeals have been consolidated.

Both in the trial court, and on appeal, Appellant, Crown Paint Company, argues that it was entitled to summary judgment against Appellee, Bankston, as a matter of law under 79 O.S. § 1 (1971), as said contract was between competitors on the same market level, to allocate territories or to minimize competition, i.e., a "horizontal restraint", which is a per se violation. Crown also argues that it was entitled to summary judgment against Bankston as a matter of law under 15 O.S. § 217 (1971), as said contract restricts a citizen from engaging in a lawful profession. Lastly, Crown argues that even if Bankston were to prevail, he is not entitled to an attorney fee.

II.

Title 79 O.S. § 1 (1971) provides:

"Every act, agreement, contract, or combination in the form of trust, or otherwise, or conspiracy in restraint of trade or commerce within the state is hereby declared to be against public policy and illegal."

As we noted in Teleco, Inc. v. Ford Industries, 587 P.2d 1360 (Okl.1978): "It has long been recognized that every agreement concerning trade, and every regulation of trade, restrains trade to some extent, and that the very essence of such agreements is to bind or restrain." ¹ Because a liberal application of the provisions of 79 O.S. 1971 § 1 would outlaw every conceivable contract or combination which could be made concerning trade or commerce, courts have read into statutes such as 79 O.S. § 1 a "rule of reason", under which only those acts, contracts, agreements or combinations which prejudice public interests by unduly restricting competition, or unduly obstructing the due course of trade, or which injuriously restrain trade, are unlawful. ²

Thus, as a general rule, only unreasonable restraints of trade, as measured by the "rule of reason", constitute a violation of statutes such as 79 O.S. § 1. However, certain restraints of trade, because of their pernicious effect on competition and lack of any redeeming virtue, are conclusively presumed to be unreasonable and, therefore, per se violations. ³

The first question before us is whether the alleged contractual agreement between Crown and Bankston constituted a per se violation of 79 O.S. § 1 (1971).

In Northern Pacific R. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545, 549 (1958), Mr. Justice Black, explaining the appropriateness of, and the need for, a per se rule in dealing with alleged violations of Section 1 of the Sherman Antitrust Act, stated:

"(T)here are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable-an inquiry so often wholly fruitless when undertaken."

More recently, in the landmark case of United States v. Topco Associates, 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972), the United States Supreme Court, in discussing the nature of agreements not to compete between competitors at the same market level, stated:

"... One of the classic examples of a per se violation of § 1 is an agreement between competitors at the same level of the market structure to allocate territories in order to minimize competition. Such concerted action is usually termed a 'horizontal' restraint, in contradistinction to combinations of persons at different levels of the market structure, e.g., manufacturers and distributors, which are termed 'vertical' restraints. This Court has reiterated time and time again that '(h)orizontal territorial limitations ... are naked restraints of trade with no purpose except stifling of competition.' "

In asserting that the restraint before us is a per se violation of the antitrust law, Crown argues that the alleged restraint is an agreement between competitors on the same market level to allocate territories or to minimize competition, and that such a restraint is properly characterized as a "horizontal restraint", which have been held to be per se violations of the Federal Antitrust Law. Conversely, Bankston argues that the restraint is a vertical restraint, that is, a restraint not to compete between two parties operating on different market levels, and therefore must be measured by the "rule of reason", because vertical restraints are not per se violations of either Federal or State Antitrust Laws.

We agree with Bankston. The evidence reflects that even if Crown was selling paint on the same market level as Bankston, nonetheless in its relationship to Bankston, Crown manufactured the paint Bankston sold to the ultimate consumer, and the relationship between Crown and Bankston was that of manufacturer and dealer. The agreement under consideration was between manufacturer and dealer, and not two manufacturers or two dealers. The agreement was by Crown as manufacturer, with Bankston as its dealer or customer, that Crown would not sell to others within Bankston's "exclusive territory", i.e., Bankston's customers, and thus was a restraint not to compete between two parties operating on different market levels, i.e., a "vertical restraint".

An agreement of this kind between a manufacturer and a customer/distributor setting up an exclusive territory within which the customer/distributor...