JH Westerbeke Corp. v. Onan Corp.
| Decision Date | 14 February 1984 |
| Docket Number | Civ. A. No. 81-0260-MA. |
| Citation | 580 F. Supp. 1173 |
| Parties | J.H. WESTERBEKE CORPORATION, Plaintiff, v. ONAN CORPORATION, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
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Robert Glass and Mary Long, Deutsch, Glass & Brooks, Boston, Mass., for plaintiff.
Edwin J. Carr and Michael J. McHugh, Rich, May, Bilodeau & Flaherty, Boston, Mass., for defendant.
This is an action under Section 2 of the Sherman Act, 15 U.S.C. § 2, and under various state law claims, for the wrongful refusal to renew a distributorship. The plaintiff, J.H. Westerbeke Corporation (Westerbeke), is a Massachusetts corporation in the business of selling and servicing propulsion engines and diesel-powered electric generating sets (gensets) for marine applications. The defendant, Onan Corporation (Onan), is a Minnesota corporation in the business of manufacturing and selling gasoline-driven and diesel-powered electric generators for a full range of applications, including marine. Onan sells its products directly or through its system of distributors located throughout the United States. Until December 31, 1980 Westerbeke had a distributorship agreement with Onan.
This action arises out of Onan's decision not to renew the distributorship agreement with Westerbeke when it expired on December 31, 1980. Westerbeke raises three claims: (1) that Onan's actions constituted monopolization or an attempt to monopolize in violation of Section 2 of the Sherman Act; (2) that Onan's actions breached a contract wherein Onan had agreed to renew the distributorship agreement; and (3) that Onan's actions constituted unfair business practices in violation of the Massachusetts Consumer Protection Act, M.G.L. c. 93A.1 Onan charges by way of counterclaim that Westerbeke owes Onan $204,021.75 for goods sold and delivered, plus late payment and interest charges. This Court has jurisdiction pursuant to 15 U.S.C. § 2 and 28 U.S.C. §§ 1337(a) and 1332(a).
Briefly stated, Westerbeke's theory of its antitrust claim is that Onan was a monopolist and misused its monopoly power when it did not renew the distributorship agreement because, in so doing, Onan intended to eliminate Westerbeke as a competitor in the sale of marine diesel gensets in the 0 to 30 kilowatt range, the market in which Onan is alleged to have monopoly power. Westerbeke claims that Onan's alleged business justifications for its decision not to renew Westerbeke's distributorship were mere pretexts trumped up by Onan. Westerbeke says Onan set unrealistic and unattainable sales goals for Westerbeke, and unfairly criticized Westerbeke's performance despite steady improvement in its sales of Onan's products, in order to build a case for non-renewal of its distributorship. Westerbeke says its performance, as compared to other Onan distributors, did not justify non-renewal.
Onan disputes each and every essential element of Westerbeke's claim. It denies that its decision not to renew the distributorship agreement had any anti-competitive motive. Rather, it states that it had reason to believe that Westerbeke was not representing effectively Onan products in the New England territory. Onan was concerned with Westerbeke's failure to maintain an adequate sales staff, adequate inventory, and adequate financing. It was also concerned with Westerbeke's failure to make prompt payment for Onan products. In addition, Onan asserts that the relevant product market for purposes of antitrust analysis consists of both diesel and gasoline gensets of all applications up to 1000 or 2000 kilowatts. Onan denies that it has monopoly power in this market.
In its contract claim, Westerbeke asserts that an October 8, 1979 letter to Westerbeke from Edward Hafner of Onan (Hafner letter) constituted an offer to renew the distributorship agreement provided that Westerbeke met certain requirements. Westerbeke contends that it met those requirements and, therefore, Onan's promise to renew is enforceable. Onan denies that it ever made an offer to renew and, further, states that Westerbeke failed to meet the requirements specified in the Hafner letter.
Lastly, Westerbeke sues under M.G.L. c. 93A, claiming that Onan's conduct constituted unfair business practices. Onan denies that its actions were motivated by anything other than legitimate business concerns.
Onan's counterclaim is a straight-forward claim for goods sold and delivered, together with late payment and interest charges. Westerbeke does not dispute the amount owed, but does challenge the late payment and interest charges.2
The case was tried to the Court without jury. The record consists of trial testimony over 9 days, numerous exhibits, extensive deposition testimony and affidavits. Pursuant to Fed.R.Civ.P. 52(a), I make the following findings and conclusions.
Because of the voluminous record and the importance of the Court's factual findings to the legal claims at issue, and because the testimony was in sharp conflict on various critical points, a more extensive recitation of the factual background is required.
Westerbeke was founded in 1937 as a distributor of Gray Marine engines in commercial marine applications. With the end of World War II, the distributorship was broadened to encompass both commercial and recreational marine applications. In 1949, Westerbeke also became a distributor of the full line of Onan products, including industrial engines and electric generating equipment. In the early 1960's Westerbeke commenced the transition from being solely a distributor of other manufacturers' products to an assembler of marine propulsion engines and generators marketed under the Westerbeke name for use on small pleasure boats, such as sailboats and small power boats. Until at least 1977 or 1978, Westerbeke imported engine blocks and heads from major manufacturers such as Perkins and British Leyland into the United States for assembly and modification to adapt them to marine use. A genset is simply an assembly of an engine with a generator that produces electrical power for the various needs, and is considered either gas or diesel powered, depending on the propulsion fuel of the engine. Westerbeke refers to the process of adapting products to marine use as "marinization."
During this same period of time, Westerbeke established a network of representatives and dealers to market its assembled product. Westerbeke sold its marine propulsion engines and diesel gensets to boat-builders, yacht repair yards, commercial marine markets, the United States Government and individual boat owners. Its gensets were also sold for non-marine applications where auxiliary power was required, such as for municipal buildings, apartments, schools and on-site construction. Westerbeke itself has never manufactured any engines or generators.
Onan is a manufacturer of engines and generators. It provides a complete product range, from small portable 1 kilowatt gensets to 4 megawatt turbine-powered units designed for cogeneration and total energy systems installations. Its products are designed for industrial, institutional and recreational uses. In addition to manufacturing engines and generators, Onan manufacturers integrated controls, transfer switchgear and other products in order to provide power for a variety of applications. Onan entered the marine genset application around 1960 and soon dominated sales with its broad line of gasoline and diesel gensets. The diesel "J" series engine, developed specifically for marine use, accounted for much of Onan's success. The "J" series was supported by Onan's reputation and its established distribution network capable of providing parts and service throughout the country. The high quality "J" series line of marine gensets remained relatively unchallenged for almost twenty years and so, also remained unchanged throughout these years. In the late 1970's, the "J" series line of marine gensets became vulnerable to competitive technological innovations in diesel genset development. In particular, Westerbeke introduced its new, improved line of lighter, smaller and quieter diesel gensets.
Throughout the 1960's and 1970's, Westerbeke had invested in a number of its own projects. Westerbeke experimented with completely assembled gensets, a fresh/sea water product, a diesel boat heater, etc. Westerbeke also attempted to design and develop a 4 cylinder, 70 cubic inch, fresh water cooled, diesel engine called the "Star" engine. These projects required substantial investment. However, they were all unsuccessful or unfruitful, and were eventually dropped by Westerbeke.
From time to time, Westerbeke and Onan had entered into renewable, written distributorship agreements. The last distributorship agreement, which is the subject of this litigation, was executed in May of 1977 and expired of its own terms on December 31, 1980.
In 1978 and 1979, Onan began to feel that Westerbeke was not representing adequately Onan's products in its assigned territory of New England. Onan felt that Westerbeke's market penetration was unsuccessful and sales objectives were not met for several reasons: Westerbeke's personnel assigned to the Onan line were not doing their best to market Onan products; Westerbeke did not have a total dealer program for sales; Westerbeke's inventory of Onan products was insufficient; and, in general, Westerbeke made an insufficient capital commitment to increase inventories and invest in the dealer program and rental fleet. Onan was not convinced that Westerbeke was returning the revenues generated by the Onan line to the Onan division, since specific financial information on the Onan division was not regularly provided and there was no clear "divisionalization" of the Onan business.
In addition, Onan received complaints directly from major, non-marine customers who felt their accounts were not...
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