Hasbrouck v. Texaco, Inc.

• Decision Date: 17 March 1988
• Docket Number: No. 85-4225,85-4225
• Citation: 842 F.2d 1034
• Parties: 1988-1 Trade Cases 67,936 Ricky HASBROUCK, d/b/a Rick's Texaco, et al., Plaintiffs-Appellees, v. TEXACO, INC., a foreign corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1034

842 F.2d 1034

1988-1 Trade Cases 67,936

Ricky HASBROUCK, d/b/a Rick's Texaco, et al., Plaintiffs-Appellees, v. TEXACO, INC., a foreign corporation, Defendant-Appellant.

No. 85-4225.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 2, 1986.

Decided Oct. 26, 1987.

Amended March 17, 1988.

Robert H. Whaley, Spokane, Wash., and John Ebel, Seattle, Wash., for plaintiffs-appellees.

Randall B. Robinson and Mark D. Litvack, White Plains, N.Y., Ira S. Sacks, Kaye, Scholer, Fierman, Hayes & Handler, New York City, and William Fremming Neilson, Paine, Hamblen, Coffin, Brooke & Miller, Spokane, Wash., for defendant-appellant.

Appeal from the United States District Court for the Eastern District of Washington.

Before SKOPIL, ALARCON and REINHARDT, Circuit Judges.

ORDER

The panel has voted to deny the petition for rehearing and to reject the suggestion for rehearing en banc. The full court has been advised that the following amended opinion would be filed. No judge of the court has requested a vote on the suggestion for rehearing en banc. Fed.R.App.P. 35(b). The petition for rehearing is denied and the suggestion for a rehearing en banc is rejected.

The attached amended Opinion is ordered filed.

AMENDED OPINION

REINHARDT, Circuit Judge.

Twelve service station owners successfully sued Texaco, Inc., for price discrimination under the federal antitrust laws. Texaco appeals the jury verdict and the district court's denial of its motion for judgment notwithstanding the verdict or, in the alternative, a new trial. We find that each of Texaco's arguments on appeal is without merit and, accordingly, affirm the decision of the district court, 634 F.Supp. 34.

I. Background

Ricky Hasbrouck and eleven other plaintiffs were Texaco retail service station dealers in the Spokane area; they purchased gasoline directly from Texaco and resold it at retail under the Texaco trademark. ¹ Throughout the relevant time period Texaco also supplied gasoline to John Dompier Oil Company and Gull Oil Company at a price that was at various times between 2.5cents and 5.75cents per gallon lower than the price Hasbrouck paid. Dompier and Gull sold the gasoline they purchased from Texaco to independent retail service stations. Dompier sold the gasoline to retailers under the Texaco trademark; Gull marketed it under private brand names. Some of the retail stations supplied by Dompier and Gull were owned and operated by the suppliers' salaried employees.

Hasbrouck filed a complaint in 1976, charging Texaco with illegal price discrimination in violation of section 2(a) of the Clayton Act, 15 U.S.C. Sec. 13(a) (1982), ² and seeking treble damages under section 4 of that act, 15 U.S.C. Sec. 15(a) (1982). ³ Section 2(a) is commonly referred to as the Robinson-Patman Act. The complaint alleged that Texaco sold gasoline at substantially and unjustifiably lower prices to Dompier and Gull, and that this resulted in a lessening of competition. When the matter was tried initially, the jury found that Texaco had engaged in price discrimination in violation of section 2(a) and awarded Hasbrouck $849,484 in damages under section 4. The district court, instead of trebling the damages, granted Texaco's motion for judgment notwithstanding the verdict (j.n.o.v.); the court held that jury instructions regarding the measurement of damages, which were based on Fowler Manufacturing Co. v. Gorlick, 415 F.2d 1248 (9th Cir.1969), cert. denied, 396 U.S. 1012, 90 S.Ct. 571, 24 L.Ed.2d 503 (1970), were erroneous because Fowler was either distinguishable, impliedly overruled or bad law. On appeal, we found that Fowler should have been followed at the time of trial and remanded the proceeding back to the district court for a new trial on the issues of liability and damages; we instructed it that the new trial should be conducted in conformity with the Supreme Court's recent analysis of price discrimination damages in J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 101 S.Ct. 1923, 68 L.Ed.2d 442 (1981). Hasbrouck v. Texaco, Inc., 663 F.2d 930, 933 (9th Cir.1981), cert. denied, 459 U.S. 828, 103 S.Ct. 63, 74 L.Ed.2d 65 (1982).

At the second trial, the jury again returned a verdict for Hasbrouck, this time in the amount of $449,900. This verdict was trebled by the court and judgment was entered in the amount of $1,349,700. Once again Texaco moved for a judgment n.o.v. or a new trial, but this time the district court denied the motion, finding that the jury's verdict was not contrary to the weight of the evidence and that Texaco failed to establish adequate grounds for a new trial. Hasbrouck v. Texaco, Inc., 634 F.Supp. 34 (E.D.Wash.1985). Texaco appeals.

II. Discussion

Texaco challenges several jury findings directly; it also bases its appeal from the district court's refusal to grant its motion for j.n.o.v. or a new trial on the alleged errors in those findings. An appellate court reviews a jury verdict only to determine whether it is supported by substantial evidence, that is, such relevant evidence as reasonable minds might accept as adequate to support a conclusion. Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1013 (9th Cir.1985), cert. denied, 474 U.S. 1059, 106 S.Ct. 802, 88 L.Ed.2d 778 (1986). A refusal to grant j.n.o.v. is proper when the evidence does not compel only one possible conclusion, the one advocated by the losing party. Peterson v. Kennedy, 771 F.2d 1244, 1252 (9th Cir.1985), cert. denied, 475 U.S. 1122, 106 S.Ct. 1642, 90 L.Ed.2d 187 (1986). A denial of a motion for a new trial is reviewed for abuse of discretion. Robins v. Harum, 773 F.2d 1004, 1006 (9th Cir.1985).

A. Proof of Price Discrimination Under Section 2(a)

Section 2(a) of the Clayton Act (the Robinson-Patman Act) prohibits the sale of like goods to different purchasers at a different price, where the effect of such price discrimination may be substantially to lessen competition. 15 U.S.C. Sec. 13(a). Texaco challenges the jury's finding of liability under section 2(a) on two grounds, (1) that the admitted price differential was justified, and (2) that, in any event, the differential did not affect competition. We disagree with Texaco on both points. We address each in turn.

1. Whether the Price Differential Was a Lawful Functional Discount. Texaco argues that the price break afforded Dompier and Gull was a legitimate wholesale discount. It maintains that, because section 2(a) permits a manufacturer to offer wholesale discounts, the critical inquiry is merely whether the discount was equally available to all wholesalers.

Manufacturers are permitted to use price differentials, commonly known as wholesale or functional discounts, to compensate certain classes of buyers for the distributional services they perform. See FTC v. Morton Salt Co., 334 U.S. 37, 43-44, 68 S.Ct. 822, 826-27, 92 L.Ed. 1196 (1948); 15 U.S.C. Sec. 13(a); 3 E. Kintner & J. Bauer, Federal Antitrust Law, Secs. 20.14 22.14 (1983). For this reason, goods may generally be sold to wholesalers at a lower price than that charged to retailers. However, the discount Texaco provided here does not qualify as a functional or wholesale discount. Moreover, Texaco is simply incorrect when it argues that it is absolved from Robinson-Patman liability if it can show that a particular discount was available to all wholesalers.

That all wholesalers were offered the same discount would be an appropriate defense in a case where the plaintiff and the other customers of the defendant were all wholesalers performing at the same level in the chain of distribution. Here, however, only the other customers are wholesalers; the plaintiffs are retailers who are further down the chain of distribution. The injury occurs at the latter level and results from the receipt by wholesalers of a functional discount in excess of the value of the services they perform, all or a portion of which they then pass on to the retailers they supply.

As the Supreme Court long ago made clear, and recently reaffirmed, there may be a Robinson-Patman violation even if the favored and disfavored buyers do not compete, so long as the customers of the favored buyer compete with the disfavored buyer or its customers. Morton Salt, 334 U.S. at 43-44, 68 S.Ct. at 826-27; Perkins v. Standard Oil Co., 395 U.S. 642, 646-47, 89 S.Ct. 1871, 1873-74, 23 L.Ed.2d 599 (1969); Falls City Indus., Inc. v. Vanco Beverages, Inc., 460 U.S. 428, 434-35, 103 S.Ct. 1282, 1288-89, 75 L.Ed.2d 174 (1983). Despite the fact that Dompier and Gull, at least in their capacities as wholesalers, did not compete directly with Hasbrouck, a section 2(a) violation may occur if (1) the discount they received was not cost-based and (2) all or a portion of it was passed on by them to customers of theirs who competed with Hasbrouck. Morton Salt, 334 U.S. at 43-44, 68 S.Ct. at 827; Perkins v. Standard Oil, 395 U.S. at 648-49, 89 S.Ct. at 1874-75; see 3 E. Kintner & J. Bauer, supra, Sec. 22.14.

Hasbrouck presented ample evidence to demonstrate that both conditions were met. The plaintiffs offered evidence that the services performed by Gull and Dompier were insubstantial and did not justify the functional discount. For example, there was evidence that Gull had no bulk plant for temporary storage of gasoline and that its customers received direct deliveries from Texaco. This evidence supports the allegation that Gull's role as a middleman amounted only to engaging in paper transactions. The record also reflects that Texaco delivered gasoline directly to Dompier's customers in some instances. In addition, as the district court put it, Texaco made "no serious attempt" to provide a quantitative justification for its functional discount, instead "merely identifying some of the functions" that Dompier and Gull were said to have performed. 634 F.Supp. at 38. ⁴ In the face of Hasbrouck's evidence challenging the cost basis of the discount, Texaco's showing...