Garment Dist., Inc. v. Belk Stores Services, Inc., 85-2362

• Decision Date: 26 August 1986
• Docket Number: No. 85-2362,85-2362
• Citation: 799 F.2d 905
• Parties: 1986-2 Trade Cases 67,248 The GARMENT DISTRICT, INC., Appellant, v. BELK STORES SERVICES, INC.; Mathews-Belk Company; Jantzen, Inc., Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 905

799 F.2d 905

1986-2 Trade Cases 67,248

The GARMENT DISTRICT, INC., Appellant, v. BELK STORES SERVICES, INC.; Mathews-Belk Company; Jantzen, Inc., Appellees.

No. 85-2362.

United States Court of Appeals, Fourth Circuit.

Argued April 10, 1986.

Decided Aug. 26, 1986.

Herbert S. Kassner (Stacy J. Haigney, Kassner & Haigney, New York City, C. Michael Wilson, Gerdes, Mason, Brunson, Wilson & Tolbert, Charlotte, N.C., on brief), for appellant.

A. Ward McKeithen (Everett J. Bowman, Robinson, Bradshaw & Hinson, P.A., Charlotte, N.C., on brief), for appellee Jantzen, Inc.

Benne C. Hutson (E. Osborne Ayscue, Jr., Charlotte, N.C., Smith, Helms, Mulliss & Moore, Raleigh, N.C., on brief), for appellees Belk Stores Services, Inc., and Matthews-Belk Co.

Before RUSSELL and ERVIN, Circuit Judges, and BUTZNER, Senior Circuit Judge.

BUTZNER, Senior Circuit Judge:

The Garment District, Inc., appeals a judgment of the district court in favor of Belk Stores Services, Inc., Mathews-Belk Co. (collectively Belk), and Jantzen, Inc., entered on a motion for a directed verdict. 617 F.Supp. 944. The Garment District claims that Belk coerced Jantzen into agreeing to terminate sales to the Garment District in furtherance of a price maintenance scheme in violation of section 1 of the Sherman Act. 15 U.S.C. Sec. 1 (1982). We affirm because the Garment District's evidence is insufficient to permit the inference that Belk and Jantzen acted in concert to set or maintain retail prices. See Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 760-64, 104 S.Ct. 1464, 1469-71, 79 L.Ed.2d 775 (1984).

The district court's entry of judgment on a directed verdict at the close of the Garment District's case requires us to view the evidence most favorably to the Garment District and to give it the benefit of all reasonable inferences that can be drawn from the evidence. We cannot weigh the evidence or pass on the credibility of witnesses, for these are functions reserved for the jury. The evidence must disclose that the Garment District cannot prevail as a matter of law. See Fed.R.Civ.P. 50(a); 9 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2524 (1971).

I

The Garment District was located in Gastonia, North Carolina, and sold clothes at discount prices. One of its competitors in Gastonia was Mathews-Belk, a member of the Belk department store chain. Belk Stores Services provides purchasing assistance to the Belk chain. There are over 400 Belk stores throughout southeastern United States. Approximately 200 of these stores sell Jantzen clothing.

The Garment District opened in the fall of 1981 and carried a full line of Jantzen clothing. Jay Crippen, who worked as Jantzen's sales representative in the Gastonia area, owned an interest in the store in violation of Jantzen's policy against self-dealing by its employees. Jantzen and Belk did not learn of Crippen's proprietary interest until after Jantzen terminated its relationship with the Garment District.

Mathews-Belk and Ivey's, another Gastonia retailer, also carried a full line of Jantzen clothing. They followed the retail industry's practice of selling clothing at a 100% markup, commonly known as the keystone price. Jantzen's suggested retail price was the keystone price. The Garment District sold Jantzen clothing at a 30-35% markup. It was the only consistent discounter of Jantzen clothing in Gastonia.

Soon after the Garment District opened, Belk pressured Jantzen to stop supplying the store by threatening Jantzen with the loss of all of Belk's business. Jantzen was not permitted to attend Belk's annual trade show. In addition, Mathews-Belk placed its Jantzen clothing in the budget basement and sold it at discount prices. In January 1982, Belk officers met with Crippen and John Jenkins, the regional manager for Jantzen, to discuss the situation in Gastonia. The Belk officers complained of sales to the Garment District, referring to it as the discount store. After the meetings, Crippen and Jenkins visited the Garment District at which time Jenkins decided to terminate Jantzen's relationship.

Jenkins instructed Crippen to terminate the Garment District on the pretext that the store did not present a suitable image for a Jantzen retailer. In fact, the relationship was terminated because of the pressure exerted by Belk. Jenkins notified Belk of Jantzen's decision to terminate the Garment District in a letter dated January 18, 1982. ¹ A Belk officer later requested that all copies of the letter be destroyed out of concern for its legal implications. Crippen, however, did not destroy his copy.

Belk also coerced Jantzen into terminating its sales to the Burlington Coat Factory Warehouse, a discount store located in Charlotte, North Carolina, by again threatening Jantzen with the loss of all of Belk's business. Belk successfully pressured Puritan Sportswear into halting its sales to the Garment District. Jantzen did not participate in this incident. Jantzen continued to deal with the World of Clothing, a discount store in Hendersonville, North Carolina, which sold a large volume of Jantzen's products.

The district court granted the defendants' motions for a directed verdict at the close of the Garment District's evidence. The court ruled:

The Plaintiff produced no evidence that there was any agreement or "conspiracy" between Jantzen and Belk to maintain resale prices. A conspiracy to maintain resale prices simply was not established by proof that the Defendant manufacturer terminated the Plaintiff following or even in response to, complaints or threats by the Defendant Belk. ²

II

Concerted action by a manufacturer and its retailers to set or maintain the manufacturer's retail prices violates section 1 of the Sherman Act. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911). Nevertheless, the manufacturer, acting independently, may announce a price and terminate those retailers who fail to adhere to it. United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919). A manufacturer's termination of a discounting distributor, in response to complaints from other distributors, is insufficient by itself to prove an illegal price-fixing conspiracy. Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 760-64, 104 S.Ct. 1464, 1469-71, 79 L.Ed.2d 775 (1984); see also Matsushita Electric Industrial Co. v. Zenith Radio Corp., --- U.S. ----, 106 S.Ct. 1348, 1363 n. 1, 89 L.Ed.2d 538 (1986) (White, J., dissenting).

In Monsanto, the Court explained that "[p]ermitting an agreement to be inferred merely from the existence of complaints, or even from the fact that termination came about 'in response to' complaints, could deter or penalize perfectly legitimate conduct." 465 U.S. at 763, 104 S.Ct. at 1470. Therefore, barring "a manufacturer from acting solely because the information upon which it acts originated as a price complaint would create an irrational dislocation in the market." 465 U.S. at 764, 104 S.Ct. at 1470. Accordingly, the Court held that to create an inference of conspiracy, "something more than evidence of complaints is needed. There must be evidence that tends to exclude the possibility that the manufacturer and nonterminated distributors were acting independently." 465 U.S. at 764, 104 S.Ct. at 1471. "[T]here must be direct or circumstantial evidence ... that the manufacturer and others had a conscious commitment to a common scheme designed to achieve an unlawful objective." 465 U.S. at 768, 104 S.Ct. at 1473. Conduct that is as "consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy." Matsushita, 106 S.Ct. at 1357.

This court applied Monsanto in National Marine Electronic Distributors, Inc. v. Raytheon Co., 778 F.2d 190 (4th Cir.1985). Raytheon terminated its relationship with National after receiving complaints from other dealers who were being undersold. Some of these complaints "rose to the level of threats that the dealers would cease doing business with Raytheon if the relationship with National was not terminated." Raytheon, 778 F.2d at 192. These threats influenced Raytheon's decision to terminate National. See 778 F.2d at 192.

We affirmed a directed verdict for Raytheon because of the "lack of evidence that reasonably tends to prove that Raytheon and the complaining dealers schemed to terminate National for the purpose of restraining price competition." 778 F.2d at 192-93. We noted that Raytheon did not dictate to its dealers the prices at which they sold. Instead, "[t]he dealers set their own retail prices.... Raytheon's dealers competed with each other and with dealers who sold competing brands of similar products. This evidence refutes the charge that Raytheon conspired with one or more dealers to terminate National for the purpose of restraining price competition." 778 F.2d at 193. We held that National's claim was barred because there was no evidence of an agreement to maintain prices.

III

Jantzen did not set retail prices. Crippen, testifying on behalf of the Garment District, said that although Jantzen suggested retail prices, each merchant was free to set its own price. Ivey's, Mathews-Belk, and the World of Clothing sold at different prices without interference from Jantzen.

Belk and Jantzen pursued different goals. Belk brought pressure against Jantzen in order to eliminate a discount competitor. Jantzen, weighing the advantages of selling to 200 Belk stores against selling to the Garment District, opted to drop the Garment District. Although Jantzen responded favorably to Belk's complaints about the Garment District, it did not enter into any agreement with Belk to fix or maintain retail prices. Belk and its neighboring competitor, Ivey's, remained free to set their own prices. Consequently, the Garment District's claim fails unless Monsanto and Raytheon can be distinguished.

IV

The Garment...