Henry v. Chloride, Inc.

• Decision Date: 26 February 1987
• Docket Number: Nos. 85-2394,85-2446,s. 85-2394
• Citation: 809 F.2d 1334
• Parties: , 1987-1 Trade Cases 67,419, 1 U.S.P.Q.2d 1610 Chris W. HENRY, Trustee in Bankruptcy for Midwest Battery, Inc., Appellee and Cross-Appellant, v. CHLORIDE, INC., a Delaware Corporation, Appellant and Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1334

809 F.2d 1334

55 USLW 2413, 1987-1 Trade Cases 67,419,

1 U.S.P.Q.2d 1610

Chris W. HENRY, Trustee in Bankruptcy for Midwest Battery Inc., Appellee and Cross-Appellant, v. CHLORIDE, INC., a Delaware Corporation, Appellant and Cross-Appellee.

Nos. 85-2394, 85-2446.

United States Court of Appeals,

Eighth Circuit.

Submitted June 12, 1986.

Decided Jan. 20, 1987.

Rehearing and Rehearing En Banc Denied Feb. 26, 1987.

Chris S. Courtroulis, Tampa, Fla., for appellant and cross-appellee.

John M. Kilroy, Jr., Kansas City, Mo., for appellee and cross-appellant.

Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and LARSON, ^* Senior District Judge.

ARNOLD, Circuit Judge.

Both sides appeal in this complicated case, which involves the Robinson-Patman Act Sec. 2(a), 15 U.S.C. Sec. 13(a), and the Lanham Act, 15 U.S.C. Secs. 1051 et seq., as well as the Missouri law of contracts and tortious interference. The defendant, Chloride, Inc., appeals from a $600,000 Robinson-Patman judgment in favor of plaintiff Midwest Battery Co. (now in bankruptcy and represented by its trustee), which claims it was driven out of business by defendant's illegal price discrimination. A jury award to plaintiff of $100,000 for breach of contract also is appealed by Chloride, as is the District Court's grant of plaintiff's motion for judgment notwithstanding the verdict, vacating the defendant's $50,000 award for trademark violations by Midwest. Finally, Midwest appeals the defendant's award of $200,000 in compensatory and punitive damages for plaintiff's tortious interference with Chloride's contracts with its salesmen. We reverse the antitrust verdict and remand that claim for a new trial. We also reverse Chloride's award for tortious interference. We affirm the District Court's decision to set aside Chloride's verdict for trademark infringement. We also affirm Midwest's verdict for breach of contract. The net result is that Midwest will recover a $100,000 judgment against Chloride on the contract claim, and that the antitrust claim will be tried again. ¹

I.

Midwest was founded in 1964 by Russell Dean, who ran the wholesale battery operation until 1978, when because of illness he turned control over to his son, John. ² Much of Midwest's business was in automotive batteries, sold to jobbers, such as auto parts stores; smaller dealers, such as service stations; manufacturers, who placed the batteries in original equipment; and a few individuals. Tr. at II:21-22. Although the company had been modestly successful from the outset, the mid-1970's brought setbacks from two sources. First, the company lost its high-profit industrial battery business, leading to losses in 1976 and 1977. Tr. at II:20-21. Second, an increasing number of dealer accounts, which tended to purchase only a few batteries at a time, switched to buying their batteries from route trucks. Described by Mr. Dean as "kind of inventory on wheels," id. at 22-23, a route-truck system not only brings the product to the customer, but the driver/salesperson also offers more individual service than the customer might receive at the warehouse. Routes could be operated either by employees of the distributor or by independent operators who worked closely with the distributor. The latter were referred to as f.o.b. salesmen.

To improve its position, Midwest in 1979 joined Battery Specialists of America (BSA), a buying group, and therefore was able to pay considerably less for the batteries it purchased. At about the same time, Mr. Dean also set up a successful company route in Wichita, Kansas, followed by others in Topeka and Kansas City, Kansas and Kansas City, Missouri. Although Midwest primarily sold Gould batteries, Mr. Dean was interested in offering Chloride batteries also because of their customer acceptance and more complete product line. In March 1980, therefore, Mr. Dean met with John Kossow, a Chloride account executive, about purchasing unbranded Chloride batteries through BSA. An unbranded battery does not carry the manufacturer's name or warranty and is sold to the distributor at a commensurately lower price than the maker's branded product. Chloride itself sold batteries in the Kansas City area through a branch office and its route trucks. Mr. Dean testified that when he asked about competing with the Chloride branch, Mr. Kossow said, " 'I don't get any credit for what that branch sells,' " and " 'the branch and you will be able to work well together.' " Tr. at II:99.

In late March, Midwest ordered and later received 800-plus unbranded Chloride batteries. By May, however, the defendant was refusing to fill a second order from Midwest and never again sold batteries to Midwest. Three circumstances appear to be key to Chloride's decision to cut off Midwest, their relative importance depending on who tells the story. Midwest did proceed to compete vigorously with Chloride in the sale of Chloride-made batteries. Second, at the end of April, three of the defendant's f.o.b. salesmen, as well as the route sales supervisor--who together accounted for 60 per cent. of the branch's sales--defected to Midwest without notice to the defendant. The supervisor, a former branch manager, also took confidential Chloride materials with him to his new position. Finally, Midwest sold the defendant's unbranded product with a label that included the notation, "BATTERIES BY CHLORIDE."

Midwest continued to compete with Chloride after the defendant's refusal to sell additional batteries, although the distributor's ambitious plans for expansion were gradually scaled down. There was considerable price-cutting, and by the end of fiscal 1980 Midwest had lost $85,000, compared to a profit of $14,000 in January 1980. Tr. at II:188. Despite the fact that Midwest's sales and gross profits increased over the next several years, its losses also grew. In June 1982, Midwest filed this lawsuit against Chloride, and 18 months later it declared bankruptcy.

The case was heard by a jury over a three-week period. Midwest claimed the defendant violated the Robinson-Patman Act by engaging in illegal price discrimination; broke the contract to supply Midwest with batteries through BSA; and fraudulently misrepresented to plaintiff its position on Midwest's competition with the Kansas City branch. By counterclaim, Chloride alleged violation by Midwest of federal trademark law, as well as tortious interference by plaintiff with Chloride's f.o.b. or route salesmen. Midwest was awarded $200,000 on the antitrust claim and $100,000 on the contract claim, which the Court found to be duplicative of the Robinson-Patman award. Chloride was awarded $100,000 in actual damages on its tortious-interference claim, another $100,000 in punitive damages, and $50,000 for trademark infringement.

The District Court upheld and trebled the Robinson-Patman damages and awarded plaintiff $302,130 in attorneys' fees, considerably less than its request for $1,248,505.30. ³ The Court also upheld the tortious-interference and contract awards, but granted Midwest's motion for judgment n.o.v. on Chloride's trademark award. This appeal followed, in which each party challenges the other's victories.

II.

Chloride challenges the Robinson-Patman award to Midwest as both incorrect as a matter of law and without evidentiary support. We look first at defendant's claim on the Act's requirement of injury to competition and then to its contention that plaintiff's alternative theory based on alleged predatory pricing is also without merit.

Under the Robinson-Patman Act, it is

unlawful for any person engaged in commerce ... to discriminate in price between different purchasers of commodities of like grade and quality ... where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them. ⁴

The jury in this case was told to consider "whether the effect of price discrimination [by Chloride] 'may have been substantially to lessen competition in a line of commerce, or to injure, prevent or destroy competition between Midwest and Chloride in the Kansas City market.' " Instruction No. 29, Tr. at XV:46. Although "you cannot infer ... such competitive injury from the mere fact that Chloride may have obtained more business ... as the result of these [discriminatory] sales and that some of this business may have come from Midwest," nevertheless, the District Court told the jurors:

Midwest is not required to show that competition in the market was in fact injured or lessened. It is only necessary to show a violation of the Robinson-Patman Act for Midwest to establish that the discriminatory sales created a reasonable possibility of injury to competition, or to a competitor.

Instruction No. 29, Tr. at XV:47-48 (emphasis added).

Chloride objected to the charge when given, and also made the charge a basis of its motion for either a judgment n.o.v. or a new trial, on the ground that the Robinson-Patman Act protects competition in general and does not prohibit price discrimination which simply injures a single competitor. "[A]lthough the courts are apparently in dispute on this issue," the District Court said, it found injury to competition between Midwest and Chloride alone sufficient under the Act to support a verdict for plaintiff. Memorandum opinion at 19 (W.D.Mo. Oct. 8, 1985). The Court said it understood the intent of Congress, in amending Section 2 of the Clayton Act with the Robinson-Patman Act, "to deal with 'the immediately important concern [of] injury to the competitor victimized by the discrimination.' " Ibid., citing S.Rep. No. 1502, 74th Cong., 2d Sess. 4 (1936). Moreover, the Court noted, the effects instruction was limited by its further directions on predatory intent. Id. at 19-20. See infra at...