ES Development, Inc. v. RWM Enterprises, Inc.

• Decision Date: 03 September 1991
• Docket Number: 90-2466 and 90-2467,90-1761,Nos. 90-1760,s. 90-1760
• Citation: 939 F.2d 547
• Parties: , 1991-2 Trade Cases 69,505 ES DEVELOPMENT, INC., and Edwin G. Sapot, Appellees, v. RWM ENTERPRISES, INC., d/b/a Moore Cadillac; and, Moore Automotive Group, Inc., d/b/a Moore Hyundai, Appellants. ES DEVELOPMENT, INC., and Edwin G. Sapot, Appellants, v. RWM ENTERPRISES, INC., d/b/a Moore Cadillac; and, Moore Automotive Group, Inc., d/b/a Moore Hyundai, Appellees. ES DEVELOPMENT, INC., and Edwin G. Sapot, Appellees, v. RWM ENTERPRISES, INC., and Moore Automotive Group, Inc., Appellants. ES DEVELOPMENT, INC., and Edwin G. Sapot, Appellants, v. RWM ENTERPRISES, INC., and Moore Automotive Group, Inc., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 547

939 F.2d 547

60 USLW 2090, 1991-2 Trade Cases 69,505

ES DEVELOPMENT, INC., and Edwin G. Sapot, Appellees, v. RWM ENTERPRISES, INC., d/b/a Moore Cadillac; and, Moore

Automotive Group, Inc., d/b/a Moore Hyundai, Appellants.

ES DEVELOPMENT, INC., and Edwin G. Sapot, Appellants, v. RWM ENTERPRISES, INC., d/b/a Moore Cadillac; and, Moore

Automotive Group, Inc., d/b/a Moore Hyundai, Appellees.

ES DEVELOPMENT, INC., and Edwin G. Sapot, Appellees, v. RWM ENTERPRISES, INC., and Moore Automotive Group, Inc., Appellants.

ES DEVELOPMENT, INC., and Edwin G. Sapot, Appellants, v. RWM ENTERPRISES, INC., and Moore Automotive Group, Inc., Appellees.

Nos. 90-1760, 90-1761, 90-2466 and 90-2467.

United States Court of Appeals,

Eighth Circuit.

Submitted March 11, 1991.

Decided July 18, 1991.

Rehearing and Rehearing en banc

Denied Sept. 3, 1991.

David O. Danis, St. Louis, Mo., for appellants.

Michael H. Wetmore, Clayton, Mo. (Alan E. Popkin, St. Louis, Mo., on the brief), for appellees.

Before McMILLIAN, Circuit Judge, BRIGHT, Senior Circuit Judge, and MAGILL, Circuit Judge.

BRIGHT, Senior Circuit Judge.

Appellants, RWM Enterprises, Inc. and Moore Automotive Group, Inc. (RWM/Moore), appeal from an order of the district court, ¹ issued pursuant to Section 16 of the Clayton Act, 15 U.S.C. Sec. 26 (1988), permanently enjoining them from jointly or individually communicating their opposition to the proposed development of an automobile mall by appellees ES Development, Inc. (ESD) and Edwin G. Sapot (Sapot). The district court held that appellants and seven other automobile dealers combined and conspired to attempt to prevent ESD, a prospective competitor, from entering the automobile retail market in violation of Sec. 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1988). On appeal, appellants assert (1) the conclusions of the district court are not supported by sufficient evidence and (2) the resulting injunction is illegally overbroad. ESD counterappeals on the issue of attorney fees and costs, contending that the district court erred in awarding only 25% of the amount it found to be reasonable. We affirm the findings and judgment of the district court as amply supported by the evidence and affirm the fee award. However, we remand for modification of the injunction.

I. BACKGROUND

ESD is a Missouri real estate development corporation founded by Sapot, who is its president and sole shareholder. ESD's sole pursuit was to develop an automobile mall in St. Louis County, Missouri. The mall would operate in the manner of a condominium complex. ESD would finance and construct the necessary facilities for multiple auto dealerships to operate. It would then sell outright to each participating dealer a dealership space within the mall. The participating dealers would share common ownership of the mall's service facility and share common expenses like advertising. ²

ESD accordingly entered into various option contracts to secure the right to purchase a contiguous ninety acre tract of land in Chesterfield, Missouri, upon which it planned to develop what would be known as the Chesterfield Auto Mall ("Mall"). To date, ESD and Sapot have spent approximately $350,000 in the development of the Mall. These expenditures include the cost of purchasing the land options as well as the costs associated with securing the approval of various state and local governmental agencies for the development of the project. The associated costs include engaging the professional services of an engineering company, an accounting firm, an architectural firm, a construction company, a media consultant and a project banker.

The ultimate success of the development of course depended upon the willingness of automobile manufacturers to commit new dealerships to, or relocate existing dealerships in, the Mall. The automobile manufacturers typically base their decisions to award a new franchise upon market studies addressing the need for and financial prospects of opening a dealership in a particular area, including the effect a new dealership might have on the profitability of existing same-line dealerships in the relevant market. ESD, through Sapot, contacted various automobile manufacturers, a number of which expressed initial interest in the project. As part of his discussions with the manufacturers, Sapot made inquiries into the prospect of personally acquiring and operating at least one of the dealerships to be placed in the Mall. Plaintiffs also separately contacted various local dealerships about the possibility of relocating in the Mall, again receiving favorable initial reactions. Although the plaintiffs' inquiries met with a favorable initial reception, none of the manufacturers or dealers made a firm commitment to the Mall.

ESD's activities caught the attention of several dealership owners within the general market area of the anticipated Mall site, causing some of them considerable concern. If operating as planned, the Mall would contain numerous car dealerships at a single site and thus provide consumers with the convenience of one-stop shopping. Some dealers therefore feared that the establishment of a same-line dealership in the Mall could divert car shoppers from their dealerships and reduce their gross earnings.

These concerns prompted a proposal that the area dealership owners meet to discuss the development of the Mall. A group of eight individuals representing nine automobile dealerships, including RWM/Moore, ³ most of whom were located in close proximity to each other about ten miles from the proposed ESD project site, attended the first meeting which occurred on March 31, 1989. An attorney in attendance at the request of one of the meeting participants advised the dealers that they must proceed with caution, couching their opposition so as not to appear to be acting in concert.

Each dealer in attendance operated under franchise agreements which provided procedures for objecting to the placement of a same-line dealership within their market area and required manufacturers or franchisors to give due consideration to any such objections. RWM/Moore's franchise agreements, for example, required the respective manufacturers to notify them of their intention to establish or relocate a same-line franchise within twenty miles of the RWM/Moore dealerships. RWM/Moore then had thirty days to submit objections to the establishment of such a franchise. Franchisees also possessed the right to appeal manufacturer decisions to place a new franchise within eight miles of appellants' dealerships. The full exercise of these contractual rights had the potential of delaying a manufacturer's decision to award a new franchise by several months.

The dealership owners at the meeting agreed that they should exercise their contractual rights of protest in connection with plans for the Mall. However, despite advice counseling against activities which would create an appearance of concerted action, the dealers also agreed to jointly retain the attorney in attendance to represent them in their opposition efforts. Further, with the aid of counsel, the dealers proceeded to discuss a possible name for their group, a proposed statement of purpose, and the value of jointly commissioning a market study. They concluded the meeting by instructing their attorney to draft (1) a form letter protesting the possible placement of a same-line dealership in the Mall which each dealer could send to its respective manufacturer and (2) a group statement of purpose.

The dealers held a second meeting on April 6, 1989. At this time, they adopted the name "Dealers Alliance" (Alliance) for their opposition group and named three of the dealers as group representatives. They also reviewed and adopted the group statement of purpose which their attorney had drafted. The statement provided in part:

The purpose of the Dealers Alliance is to explore and advance areas of common and individual dealer concern with respect to actions of franchisors/manufacturers at the proposed Chesterfield Auto Mall, or any similar geographic location.... The goal of the Dealer Alliance is to investigate and provide facts and evidence to its members and to the automobile manufacturers concerning the potential impact of the foregoing upon existing automobile dealers. The Dealer Alliance seeks to enable the members and the manufacturers to make informed decisions regarding potential new or relocated dealerships. The further goal of the Dealer Alliance is to insure that the legal rights of its individual members are protected.

Additionally, the members of the Alliance agreed to jointly commission a market study which each member could use to counter the market studies of their respective manufacturers and as evidence in any possible lawsuit against a manufacturer for breach of good faith in complying with the terms of the franchise agreement. The attorney for the Alliance also requested that each member complete a questionnaire. The questionnaire, labeled "Privileged and confidential--prepared in anticipation of litigation," requested that each dealer provide the attorney with a copy of his franchise agreement and any information he possessed regarding, inter alia, market studies performed by his respective manufacturer, oral representations by his manufacturer concerning the establishment of new dealerships in the area, and the dealers' relevant market area.

Finally, prior to the April 6 meeting, each of the members received the form letter of protest drafted by the group's attorney. The form letter stated in part:

A development known as the Chesterfield Auto Mall is seeking dealers to open new or relocated franchises.... My concern is focused on your action or potential action with respect to locating a dealership in this market area at or near this geographical point.... As you know, [Manufacturer/Franchisor] is under legal obligation, imposed by both U.S. and Missouri law, to deal with me in good faith. I trust...