Fineman v. Armstrong World Industries, Inc.

• Decision Date: 24 November 1992
• Docket Number: No. 91-5613,91-5613
• Citation: 980 F.2d 171
• Parties: , 1992-2 Trade Cases P 70,010, 24 Fed.R.Serv.3d 162 Elliot FINEMAN; The Industry Network System, Inc., Appellants, v. ARMSTRONG WORLD INDUSTRIES, INC., Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 171

980 F.2d 171

61 USLW 2269, 1992-2 Trade Cases P 70,010,

24 Fed.R.Serv.3d 162

Elliot FINEMAN; The Industry Network System, Inc., Appellants, v. ARMSTRONG WORLD INDUSTRIES, INC., Appellee.

No. 91-5613.

United States Court of Appeals Third Circuit.

Argued March 3, 1992.

Decided Oct. 28, 1992.

Sur Petition for Rehearing

Nov. 24, 1992.

John J. Gibbons, Crummy, Del Deo, Dolan, Griffinger & Vecchione, Newark, N.J., Laurence H. Tribe (argued), Cambridge, Mass., for appellants.

J. Randolph Wilson (argued), Theodore Voorhees, Jr., Covington & Burling, Washington, D.C., Arlin M. Adams (argued), Carl A. Solano, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., Edith K. Payne, Stryker, Tams & Dill, Newark, N.J., for appellee.

Before: STAPLETON and MANSMANN, Circuit Judges, and FULLAM, District Judge. ^*

OPINION OF THE COURT

MANSMANN, Circuit Judge.

In a civil action brought in the United States District Court for the District of New Jersey, an entrepreneur, Elliot Fineman, and his corporation, The Industry Network System, Inc. (TINS), sought to recover against Armstrong World Industries, Inc., a prominent manufacturer of floor covering products, for losses sustained after TINS folded. Conceived in late 1983, the TINS concept employed novel video technology to produce a monthly videotape magazine for retailers of floor covering products to be sold through distributors. Fineman contended that Armstrong, anticipating the launching of its own videotape network, interfered with TINS' prospective contract with an Armstrong floor covering distributor to distribute the TINS video magazine. As a result of losing this contract, TINS lacked the cash flow necessary to continue in business and folded. Fineman, formerly an industry consultant, allegedly suffered injury to his reputation that destroyed his consulting business. Additionally, Fineman and TINS asserted that Armstrong, a leading manufacturer of resilient floor coverings, coerced its distributors to refuse to deal with TINS by employing its alleged leverage in the resilient floor covering market to eliminate TINS and to gain a competitive advantage in the secondary market of videotape magazines. Having cleared from the field an early competitor, Armstrong prepared, according to Fineman, to enter the videotape magazine market unencumbered by competition.

Armstrong argued in defense that TINS' opportunities for success were specifically limited by its allegedly inferior product high pressure sales tactics or poor business projections. In general, Armstrong implied that the risk inherent in starting any small business is further heightened in the magazine industry, where start-up costs and barriers to entry are low and competition is, consequently, stiff.

The jury agreed with TINS and Fineman, rendering a verdict for them on the tort and the antitrust claims, including the imposition of punitive damages. The district court, in part assessing the strength of the evidence differently, granted judgment notwithstanding the verdict, ¹ and in the alternative, a new trial.

With respect to the judgment n.o.v., the parties dispute whether the plaintiffs have proven their tortious interference claims, are entitled to punitive damages on that claim and whether Armstrong exercises monopoly power in the resilient floor covering market, a prerequisite to TINS' Sherman Act section 2 claim. They also contest the district court's grant of a directed verdict for Armstrong on TINS' section 1 claim, specifically, whether the meeting of the minds required to establish a claim of concerted action under section 1 of the Sherman Act requires a shared motive. Finally, TINS challenges the grant of summary judgment to Armstrong on TINS' contract claim, disputing Armstrong's obligations under the 1984 TINS-Armstrong Settlement Agreement. We will address the judgment n.o.v., new trial, directed verdict and summary judgment orders in that sequence.

I. Jurisdiction

The district court exercised subject matter jurisdiction over the Sherman Anti-Trust Act claims, 15 U.S.C. §§ 1 and 2 (Counts 1 and 2), and pendent jurisdiction over the remaining state law claims: breach of contract (Count 3); tortious interference with contract under New Jersey law (Count 4); New Jersey antitrust claims (Count 5) and Armstrong's counterclaim averring that the plaintiffs engaged in civil conspiracy.

We exercise appellate jurisdiction over the final order of the district court granting judgment n.o.v. for Armstrong on the tortious interference, Sherman Act section 2 and New Jersey antitrust claims; dismissing Fineman's individual monopoly claim, the Sherman Act section 1 claim, the breach of contract claim, and Armstrong's counterclaim; and alternatively granting a new trial on the tort and section 2 claims.

II. Facts

A. The Parties

A brief introduction into the structure of the floor covering distribution scheme, and Armstrong's specific characteristics, will serve as useful background for understanding the discrete conflicts at issue here. Later, we will detail the facts relevant to each legal issue. A thorough review of the record is necessary because this appeal is so fact specific. The following recitation reviews undisputed facts or casts the facts in the light most favorable to the verdict winners, the plaintiffs.

Floor coverings are distributed to retailers from manufacturers through distributors, also known as wholesalers. Floor covering distributors may often be "captive" to their manufacturers, carrying only that manufacturer's line of one particular product. This is frequently the case with Armstrong's distributors of its resilient floor coverings. This captivity appears to be limited to product lines; thus, a distributor may carry only Armstrong's resilient line but a different manufacturer's carpet or ceramic tile line. For purposes of this opinion, an "Armstrong distributor" denotes a distributor that is "captive" to Armstrong for its resilient line but may also carry non-Armstrong non-resilient lines. It also bears emphasis that Armstrong does not possess any ownership interest in its distributors. On this record, a typical Armstrong distributor depends upon Armstrong for 95% of its resilient business ² but 50% of its overall business.

By contrast, retailers, who range from "mom and pop" outfits to chain floor covering retailers to other retailers that carry floor covering as a sideline, e.g., furniture, hardware, wallpaper and paint stores, and lumberyards, generally carry various brands; they purchase floor covering products from competing distributors. Depending upon the manufacturer and the specific product line, retailers may choose to buy from distributors competing within the same manufacturer's product line. Armstrong, for example, promotes intrabrand competition for its resilient line by supplying resilient to multiple distributors within any given territory. Thus distributors vigorously compete for retailer loyalty, floor space and displays, in large part because they have very little flexibility in pricing their products. Distributors vie for sales by offering "specials" or "promotions" on items, which are frequently financed by the manufacturers. In addition, some retailers purchase directly from manufacturers, although Armstrong deals exclusively through its distributors.

1. Armstrong World Industries, Inc.

During the relevant 1983-1984 time period, Armstrong World Industries, Inc., manufactured both carpet and resilient floor covering products. ³ "Resilient" is the industry name for vinyl floor coverings, manufactured in either sheeting or tile form, and most commonly identified with the brand name "linoleum." Resilient constitutes only one of many types of "hard" floor coverings, including wood, ceramic tile, and natural floor coverings such as stone and marble. In industry jargon, "hard" floor coverings are distinguished from "soft" floor coverings, familiarly referred to as carpeting.

Armstrong's dual corporate structure flowed from its two floor covering products and consisted of twin carpet and resilient divisions. At the regional level, each division maintained its own district managers and sales force. During the relevant time period, Robert Roth served as the New York area district manager for Armstrong's resilient division and Robert Guzinsky was Roth's counterpart in Armstrong's carpet division. These men appear to have had little horizontal contact, except, for example, when a distributor carrying both lines required some financial counseling or advice from its respective district managers.

At the distributor level, however, one significant difference between the two Armstrong divisions is apparent. Armstrong sells to any number of resilient distributors within a defined geographic territory, which fosters keen competition among Armstrong's own distributors as well as with other manufacturer's distributors. Armstrong's carpet division, on the other hand, grants exclusive territorial rights to each of its carpet distributors, thereby insulating them from intrabrand competition.

2. Elliot Fineman and TINS

Elliot Fineman began his career in the floor covering industry in 1963 as a salesman for a New York area carpet retail company, Benjamin Berman. During his fourteen year tenure at Berman, in which he worked his way up to the position of president, he developed a unique inventory control system. J.A. at 1565-7; 6398-6404. In 1977, Fineman left Berman to start a consulting business, Cost-Free Internal Profits Systems (CFIPS), largely premised on this inventory control system. As Gail Farrer, a TINS principal who followed Fineman from Berman to CFIPS explained, CFIPS aimed to achieve increased profitability from inside a floor covering distributor's company by reducing inventory and the costs associated with maintaining an excessive amount of inventory. J.A. at 3359-60. Fineman explained that a distributor's profits are a matter of pennies on the...