Fox Motors, Inc. v. Mazda Distributors (Gulf), Inc., 83-2125

• Decision Date: 26 November 1986
• Docket Number: No. 83-2125,83-2125
• Citation: 806 F.2d 953
• Parties: , 1986-2 Trade Cases 67,360 FOX MOTORS, INC., and Kae Myers Motors, Inc., Plaintiffs-Appellees, v. MAZDA DISTRIBUTORS (GULF), INC., and Mazda Motors of America (Central), Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 953

806 F.2d 953

55 USLW 2344, 1986-2 Trade Cases 67,360

FOX MOTORS, INC., and Kae Myers Motors, Inc., Plaintiffs-Appellees, v. MAZDA DISTRIBUTORS (GULF), INC., and Mazda Motors of America

(Central), Inc., Defendants-Appellants.

No. 83-2125.

United States Court of Appeals, Tenth Circuit.

Nov. 26, 1986.

Charles T. Newton, Jr. (Ann Lents, with him on the brief and Murray E. Abowitz of Abowitz & Welch, Oklahoma City, Okl., with him on the brief) of Vinson & Elkins, Houston, Tex., for defendants-appellants.

Jack N. Price, Austin, Tex. (Charles Freede, Oklahoma City, Okl., with him on the brief), for plaintiffs-appellees.

J. Paul McGrath, Asst. Atty. Gen. (Douglas H. Ginsburg, Deputy Asst. Atty. Gen., Barry Grossman and William J. Roberts, Attys., Dept. of Justice, Washington, D.C.), filed an amicus curiae brief, for the United States of America.

Before SEYMOUR and DOYLE, Circuit Judges, and CARRIGAN, District Judge. ^*

SEYMOUR, Circuit Judge.

Plaintiffs, Fox Motors, Inc. and Kae Myers Motors, Inc., two Mazda dealerships in Oklahoma, sued Mazda Motors of America, Inc. (Central) and Mazda Distributors, Inc. (Gulf) under the federal antitrust laws, 15 U.S.C. Secs. 1 et seq. (1982), and the Automobile Dealers' Day in Court Act, id. Secs. 1221 et seq., otherwise known as the Dealers' Act. The district court directed a verdict for Central on the Dealers' Act claim. The jury found in favor of Fox and Myers on the antitrust claims against Gulf and Central, and on the Dealers' Act claim against Gulf. On appeal, both defendants contend that they were entitled to judgment as a matter of law on the antitrust claims. In addition, Gulf contends that it was entitled to judgment notwithstanding the verdict, or alternatively a new trial, on the Dealers' Act claim. We reverse on the antitrust claims and affirm the finding of Gulf's liability under the Dealers' Act. We remand for a new trial on the issue of damages.

I. BACKGROUND

In reviewing a judgment on a jury verdict, the evidence presented at trial must be considered in the light most favorable to the prevailing party. See Hewitt v. City of Truth or Consequences, 758 F.2d 1375, 1377 (10th Cir.1985); Gardner v. General Motors Corp., 507 F.2d 525, 527 (10th Cir.1974). The record reveals the following facts.

Mazda automobiles are manufactured in Japan and imported into the United States. As of May 1978, Central handled Mazda imports bound for thirty-one western and midwestern states. Central provided vehicles to Gulf, an independently owned company which in turn distributed vehicles to individual dealerships in eleven states near the Gulf of Mexico. Fox and Myers, Mazda dealers since 1972, are dealerships established and supplied by Gulf. Neither dealer carried the vehicles of competing manufacturers along with those of Mazda, although after 1973 they were free to do so.

Mazda experienced poor sales between 1974 and 1977. By 1978, the only Mazda vehicle available from distributors was a new subcompact, the GLC. Many of these cars accumulated in Gulf's inventory. A number of dealers, including Fox and Myers, became financially weakened. Nonetheless, both were initially encouraged to remain with Mazda in anticipation of new, better-selling models. Mazda's sales began improving in 1978 with the introduction of a highly successful sports car, the RX-7.

RX-7s were popular but scarce. Consequently, Central was required to allocate its supply among distributors, who were required to do the same among dealers. Gulf implemented an allocation system which provided dealers with RX-7s in proportion to the number of GLCs which each dealer had sold during previous three-month intervals. In other words, the better dealers, those who had been more successful at moving GLCs, received a greater number of RX-7s. Notably, a dealer could not obtain additional RX-7s by increasing its purchases of GLCs from Gulf; it could only get more RX-7s by selling GLCs. Thus, those who continued to sell more GLCs were able to purchase more of the scarce RX-7s than the less successful Mazda dealers. Under this system, Gulf was able to shift its inventory of GLCs to dealers, who were selling them at a discount.

During this period of increased sales, Gulf added a significant number of new dealers. These dealers received an initial allotment of RX-7s without regard for any initial success in marketing GLCs. This allocation system remained in effect from March 1978 until April 1979, when RX-7 sales were included in the formula for obtaining additional cars.

Gulf also instituted a policy it described as "drastic action" to upgrade or eliminate established but financially ailing dealerships. Gulf representatives attempted to convince both Fox and Myers to terminate their franchises and, in addition, threatened Myers and other dealers with termination for contemplating legal action in response to Gulf's allocation system. Gulf continued to require that Fox and Myers sell more GLCs if they wished to obtain RX-7s.

Fox and Myers brought this action for damages. The district court ultimately submitted the case to the jury on the antitrust claims: (1) that Gulf's allocation method constituted a presumptively illegal tying arrangement, and (2) that Central had conspired with Gulf to implement the system. ¹ The court also submitted the contention that Gulf's conduct with respect to Fox and Myers violated the Dealers' Act. In accordance with the jury verdict in favor of Fox and Myers on these claims, the court entered a treble damage judgment of approximately $1 million for Fox and $1.4 million for Myers, plus attorney's fees and interest. The district court denied defendants' post-trial motions for judgment notwithstanding the verdict and for new trial.

On appeal, Gulf and Central argue that the district court erred in sending the tying claim to the jury under a per se instruction because the arrangement should not be characterized as a per se tie, or alternatively, because the elements of such a tie were not established as a matter of law. They

also assert that the evidence of a conspiracy between them to violate the antitrust laws was insufficient to create a jury issue. Gulf contends in addition that plaintiffs' Dealers' Act claim was legally and factually insufficient, and challenges the damages awarded under that Act.

II. ANTITRUST CLAIMS

In Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984), the Supreme Court held that "[i]t is far too late in the history of our antitrust jurisprudence to question the proposition that certain tying arrangements pose an unacceptable risk of stifling competition and therefore are unreasonable 'per se.' " Id. at 1556. Tying arrangements pose such a risk when sellers exploit their control over one market to force buyers into accepting another product which would otherwise be purchased elsewhere. Power in one market may not be employed to impair competition on the merits with existing or potential rivals in another market, nor may purchasers be denied the freedom to select the best buy in the latter market. Id. at 1559-60; see also Black Gold Ltd. v. Rockwool Industries, Inc., 729 F.2d 676, 684-85 (10th Cir.1984).

The likelihood of exploitation depends upon three elements. First, purchases of the tying product must be conditioned upon purchases of a distinct tied product. See, e.g., Fortner Enterprises v. United States Steel Corp., 394 U.S. 495, 507, 89 S.Ct. 1252, 1260, 22 L.Ed.2d 495 (1969) (Fortner I ); Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 613-14, 73 S.Ct. 872, 883, 97 L.Ed. 1277 (1953). Second, a seller must possess sufficient power in the tying market to compel acceptance of the tied product. Such power exists where market share is high, see, e.g., Times-Picayune, 345 U.S. at 611-13, 73 S.Ct. at 881-83, or where a seller offers a unique or otherwise desirable product which competitors cannot economically offer themselves. See Fortner I, 394 U.S. at 504-06 & n. 2, 89 S.Ct. at 1259-60, 1259 n. 2; see also Black Gold, 729 F.2d at 684. See generally II P. Areeda & D. Turner, Antitrust Law Secs. 504b, 505 (1978). Finally, a tying arrangement must foreclose to competitors of the tied product a "not insubstantial" volume of commerce. Fortner I, 394 U.S. at 499, 89 S.Ct. at 1256 (quoting Northern Pac. Ry. Co. v. United States, 365 U.S. 1, 5-6, 81 S.Ct. 435, 437-38, 5 L.Ed.2d 377 (1958)).

Fulfillment of these conditions establishes a presumption of an unlawful restraint of trade and generally warrants per se condemnation under the antitrust laws. Procompetitive benefits allegedly flowing from a challenged practice are disregarded under this approach, on the ground that per se rules are designed to avoid potentially burdensome inquiries into market conditions where the likelihood of anticompetitive conduct is sufficiently great. ² See Hyde, 104 S.Ct. at 1560 n. 25; see also Arizona v. Maricopa County Medical Society, 457 U.S. 332, 350-51, 102 S.Ct. 2466, 2476, 73 L.Ed.2d 48 (1982). Hyde's reaffirmation of such strict treatment for certain tying arrangements precludes application of the Rule of Reason until the probability of anticompetitive exploitation is properly The initial characterization of a restraint challenged as a tying arrangement is critical in determining whether per se condemnation is appropriate. See P. Areeda, The "Rule of Reason" in Antitrust Analysis: General Issues 30-32 (Federal Judicial Center 1981); see also VII P. Areeda, Antitrust Law Sec. 1510C (1986). Presumptive illegality depends, most obviously, upon the existence of a genuine tying arrangement: the sale of one product conditioned upon purchases of another. See Colorado Pump & Supply Co. v. Febco, Inc., 472 F.2d 637, 640 (10th Cir.), cert. denied, 411 U.S. 987 (1973); see also Wolfinger v. Standard Oil Co., 442 F.Supp. 928, 932 (S.D.Ohio 1977).

                ruled out.   See Hyde, 104 S.Ct. at 1556-61;  see also Airweld, Inc. v.

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