Gray v. Shell Oil Company

• Decision Date: 27 December 1972
• Docket Number: No. 25653,25657.,25653
• Citation: 469 F.2d 742
• Parties: Richard GRAY et al., Appellants, v. SHELL OIL COMPANY, Appellee. SHELL OIL COMPANY, Cross-Appellant, v. Richard GRAY et al., Cross-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

469 F.2d 742 (1972)

Richard GRAY et al., Appellants, v. SHELL OIL COMPANY, Appellee.

SHELL OIL COMPANY, Cross-Appellant, v. Richard GRAY et al., Cross-Appellees.

Nos. 25653, 25657.

United States Court of Appeals, Ninth Circuit.

November 15, 1972.

Rehearing Denied December 27, 1972.

COPYRIGHT MATERIAL OMITTED

Peter J. Donnici (argued), Joseph M. Alioto, Lawrence J. Appel, Joseph L. Alioto, San Francisco, Cal., James D. Glenn, Jr., Fremont, Cal., Hirshon, Gerhardt & Bowers, San Jose, Cal., for appellants.

William Simon (argued), John Bodner, Jr., John F. Bruce, of Howrey, Simon, Baker & Murchison, Washington, D. C., McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for appellee.

Before LUMBARD,^* MERRILL and KILKENNY, Circuit Judges.

KILKENNY, Circuit Judge:

Appellants, and a number of other present and former Shell Service Station dealers in the East San Francisco Bay Area, instituted this private treble damage action under the Federal Anti-Trust Laws¹ against appellee and cross-appellant Shell Oil Company Shell. The complaint alleged multiple anti-trust violations under § 1 restraint of trade and § 2 monopolization of the Sherman Act (15 U.S.C. §§ 1, 2) and § 2 price discrimination of the Clayton Act, as amended by the Robinson-Patman Act (15 U.S.C. § 13). The complaint prayed for both damages and injunctive relief. Shell responded by filing an answer in which it asserted a counterclaim for damages and injunctive relief based on § 1 of the Sherman Act (15 U.S.C. § 1). Following the filing of the complaint, all of the plaintiffs, except the four appellants, voluntarily requested and were permitted to withdraw from the case. Of the four appellants, three leased service stations from Shell and sold its gasoline and related products. The fourth, Richard Gray, was engaged by Shell under a management agreement to operate a Shell owned station.

BACKGROUND

In the area where appellants' stations were located, Shell marketed its gasoline in competition with numerous other oil companies, both large and small. During the period under scrutiny, the marketing of gasoline in the area was highly competitive, the Shell stations being surrounded by many competing stations. Competition among service stations is based on price, advertising, promotion, appearance, location, facilities, hours of operation, service, cleanliness and related subjects. In order to be successful a service station must be competitive in all or most of these areas or trade will be diverted to competing stations. Of the listed essentials, price is the most important competitive factor. Price competition is carried on by the use of price signs posted on the curb so that a motorist can decide at which station to buy. With competing service stations located close to each other, as here, motorists, in general, purchase their gasoline at the service station which indicates a price lower than that of a competing station.

Although some Shell stations are privately owned, most are operated under lease agreements, with Shell selling its gasoline and related products to the operator for resale. A few stations, for example the one operated by appellant Gray, were Shell owned and operated by managers under a commercial agreement. Shell is responsible for various training programs and offers dealers a means of stocking their stations with the requisite inventory of motor oil, tires, batteries and other related automotive products. Each station carried tires, batteries and accessories, either Shell brand products or name brand products distributed by Shell or brands purchased from other suppliers.

The conflict between the parties seems to have originated, at least in part, in the late Spring of 1966 when a group of Shell dealers in the East Bay area organized the CALIFORNIA SHELL DEALERS ASSOCIATION. Shortly after its formation, the association fixed as its goal an increase in retail gasoline prices and the elimination of competition among service stations. Later that year, other service station dealer associations were formed in the San Francisco Bay Area. Following a three month period of coercive activity between the three dealer associations, a Federal Grand Jury commenced an investigation into their activities and in April of 1967 returned an indictment against the associations charging an illegal fixing of retail prices of gasoline in two California counties. Following the indictment, the appellants, and several other dealers involved in the conspiracy, commenced recruiting others to institute this litigation against Shell. At a mass meeting of the dealers on June 3, 1967, the filing of this action was approved.

The anti-trust allegations before us grow primarily out of a marketing situation, commonly called a "gas war". Shell uses a program it terms as "competitive price assistance" to help their lessee dealers in an area where one or more of the competing stations has dropped the price of gasoline so low that the market share and financial welfare of the service station is at stake. Through a system which we need not outline in detail, Shell absorbs all price cuts beyond a maximum of 1¢ for the lessee dealer. Shell will do this only under three conditions: (1) it will grant price support only if a dealer requests it; (2) the dealer requesting assistance must show real loss and the existence of competition selling at a lower price; and (3) it must be able to ascertain that it is meeting oil company competition, not merely retail competition.² In order to determine whether it is meeting lower wholesale prices, Shell contends that it normally gathers the information from competing retail dealers. Although there is no evidence of a systematic exchange of information between the oil companies, Shell admits to obtaining wholesale price information from other major oil companies and using it to determine whether or not it would engage in its dealers' support plan. It argues, of course, that the purpose of obtaining the information was to encourage its dealers to meet the competition in the relevant area and thus comply with its interpretation of the decision in Sun Oil. Many oil companies, including Shell, make their wholesale prices publicly known. Some do not.

In the complaint, and as developed in pre-trial procedures, the three basic issues for trial were: (1) whether Shell had engaged in a horizontal price-fixing conspiracy with gasoline suppliers to establish the wholesale price of its gasoline purchased by appellants and other Shell dealers, (2) whether Shell had engaged in a vertical price-fixing conspiracy with appellants and other Shell dealers by imposing upon them the retail prices at which they had to sell Shell gasoline to the motoring public, and (3) whether Shell had forced appellants and other Shell dealers to buy sponsored tires, batteries and accessory products commonly referred to as TBA products. On these issues, appellants claim damages for the period in question.

At the close of appellants' evidence, the lower court (1) granted a directed verdict against Gray, (2) granted a directed verdict against Chandler and White on their vertical price-fixing claims, and (3) granted a directed verdict against appellants in connection with the TBA products claim. The case went to the jury on the remaining issues, including Shell's counterclaim. The jury found against appellants on their claims and in favor of Shell on its counterclaim, but awarded no damages.

FIRST CONTENTION

At the outset, appellants contend that the record establishes, as a matter of law, an illegal combination in restraint of trade and that they were entitled to a directed verdict on the issue of liability. Appellants present a sweeping argument to the effect that the exchange of price information between the major oil companies, as shown by the record, amounts to a per se violation of § 1 of the Sherman Act. They say that Shell exchanged price information with other major suppliers, resulting in identical wholesale prices, which moved up and down in tandem, and they brand these procedures as horizontal price-fixing per se, and, argue that whatever the motivation, the procedures employed were illegal under the doctrine enunciated in United States v. Container Corp. of America, 393 U.S. 333, 89 S.Ct. 510, 21 L.Ed.2d 526 (1969).

In support of their argument, appellants emphasize that about seven oil companies controlled some 80% of the western market and that Shell gathered price information from other wholesalers through "non-pricing personnel" for the alleged purpose of "verifying" a reduction in the competition's wholesale price. They then attempt to demonstrate that there was literally no variation in wholesale price levels in the given competitive area during the period here in question. Additionally, appellants contend that the purpose of the price exchange between the major suppliers was to force independent dealers out of business and thereby increase the market share of each major oil company. Here, the appellants utilize evidence that the major oil companies would order retail stations to drastically reduce prices and then the alleged "competitive price support" system would come into play with a resulting broad scale reduction in prices to a level that the independent suppliers could not meet. By thus keeping the major competitors in line on the reduced prices, there could be no erosion of the market share of any of them.

Appellants say that the essential characteristics of this case are undistinguishable from those before the court in United States v. Container Corp. of America, supra.

Appellants' reliance on Container is misplaced. First of all, we are here faced with the fundamental rule that on appeal the evidence must be viewed in the light most favorable to Shell. Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962). While the recitation of facts in the majority opinion in Container is admittedly...