Johnson v. Pacific Lighting Land Co.

• Decision Date: 18 May 1987
• Docket Number: Nos. 84-2834,85-1600,s. 84-2834
• Citation: 817 F.2d 601
• Parties: 1987-1 Trade Cases 67,565, 22 Fed. R. Evid. Serv. 1700 Norman R. JOHNSON and Louise C. Johnson, et al., Plaintiffs-Appellees/Cross- Appellants, v. PACIFIC LIGHTING LAND COMPANY, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 601

817 F.2d 601

1987-1 Trade Cases 67,565, 22 Fed. R. Evid. Serv. 1700

Norman R. JOHNSON and Louise C. Johnson, et al Plaintiffs-Appellees/Cross- Appellants, v. PACIFIC LIGHTING LAND COMPANY, Defendant-Appellant/Cross-Appellee.

Nos. 84-2834, 85-1600.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 3, 1985.

Decided May 18, 1987.

Andrew M. Federhar and Kenneth Allen, Tucson, Ariz., and Don B. Engler, Yuma, Ariz., for plaintiffs-appellees/cross-appellants.

John J. Swenson and Judith H. Pearce, Los Angeles, Cal., and John H. Westover and Stephen E. Richman, Phoenix, Ariz., for defendant-appellant/cross-appellee.

Appeal from the United States District Court for the District of arizona.

Before BROWNING, SNEED and HUG, Circuit Judges.

HUG, Circuit Judge:

This is a class action by a group of citrus fruit growers against a commercial packing house that picked, hauled, packaged, and shipped the fruit to market. The action is based on three theories: (1) breach of contract; (2) violation of state antitrust laws; and (3) violation of the federal Perishable Agricultural Commodities Act ("PACA"). The case was filed in state court and removed to federal court under 28 U.S.C. Sec. 1331 (1982) based on the claim under the federal statute. The remaining two claims are pendent state claims. The jury rendered a verdict awarding damages of $3,900,000 on the breach of contract claim and $440,000 on the antitrust claim. The jury also found the defendant liable on the PACA claim, but awarded no damages. The defendant's motion for a judgment not withstanding the verdict or, in the alternative, for a new trial, was denied. Defendant appeals from judgment on the verdict of $4,340,000 and the denial of the motion. The plaintiffs appeal the denial of their motion for attorneys' fees to be assessed against the defendant.

Defendant, Pacific Lighting Land Company, is a holding company that owned Yuma Citrus Company ("YCC"), a commercial packing house, during 1973-1978, the years at issue in this case. The plaintiffs were certified to represent a group of 240 citrus fruit growers in the Yuma, Arizona area that had contracted with YCC to pick, haul, pack, and ship their fruit to market during any of those years.

The issues raised on YCC's appeal are:

(1) Whether the district court should have directed a verdict for YCC on the state antitrust claim;

(2) Whether the district court properly instructed the jury on the measure of damages on the contract claim;

(3) Whether the district court should have directed a verdict for YCC on the question of the plaintiffs' entitlement to rebates from a supplier of packing materials;

(4) Whether it was error to admit hearsay statements from a former manager of YCC; and

(5) Whether the district court properly excluded certain evidence of trade standards and commercial practice.

We reverse and remand for a new trial. Therefore, we do not reach plaintiffs' cross-appeal of the order denying attorneys' fees.

I. FACTS

In order to understand the issues presented on this appeal, it is necessary to understand the nature of the "Sunkist System," of which the plaintiff class of growers were members. Sunkist Growers, Inc. ("Sunkist") is a nonprofit cooperative marketing association. It is the central marketing agent for the fruit growers and it operates a federated system with local associations and district exchanges, which is designated the "Sunkist System" and utilizes the "Sunkist" trademark.

The local associations of growers in some instances operate cooperative packing houses. In other instances, the growers contract individually with commercial packing houses licensed by Sunkist. The growers represented by the plaintiffs in this case were all growers that contracted with YCC to perform the packing house functions. YCC was licensed as a commercial packing house by Sunkist and operated as a profit-making entity. YCC executed a written license agreement with Sunkist, agreeing to operate for the growers and the Sunkist System. YCC subsequently entered into written contracts with the growers. During the 1973-74 and the 1974-75 seasons, YCC utilized a form contract entitled "Contract to Handle Fruit." During the 1975-76, 1976-77, and 1977-78 seasons, a form contract entitled "Agency Agreement" was utilized. These two contracts, though similar, varied in some respects. These three documents--the license and the two contracts with the growers- In support of the antitrust claim, the plaintiffs alleged that YCC conspired with other packing houses in the Yuma area to limit the quantity of lemons harvested and shipped in order to enhance the market price for lemons. The plaintiffs contend that the market price had fallen when the lemons eventually were sold, causing the growers to lose $440,000.

--are the contracts that YCC allegedly breached.

Plaintiffs also contended that YCC wrongfully retained rebates it received from Fruit Growers Supply ("FGS") for packing materials purchased and utilized by YCC in packing and shipping the growers' fruit. FGS is a cooperative, the members of which are local associations that operate packing houses and commercial packing houses licensed by the Sunkist System. FGS sells packing materials, such as crates and cardboard cartons, to packing houses on a nonprofit basis. Assessments are paid by the members to FGS and rebates are made to the packing houses by FGS after its costs are determined. The plaintiffs contended that they were entitled to the rebates because these were intended for the benefit of the growers.

II. THE ANTITRUST CLAIM

The growers contended, and the jury found, that YCC had violated the Arizona antitrust statute, Ariz.Rev.Stat.Ann. Secs. 44-1401 to--1415 (1967 & Supp.1986), by conspiring to withhold the growers' fruit from market. YCC argues that the trial judge should have directed a verdict in its favor because, inter alia, the growers did not demonstrate any anticompetitive effect or injury and thus failed to state a claim under the Arizona statute. The following facts were brought out at trial.

Because the supply of fruit usually exceeds the demand, fruit is normally marketed under a federal "pro-rate" system, which allows each grower to ship only a certain percentage of his fruit. However, in 1975, a poor harvest, especially of California crops, was predicted and this limitation was lifted, thus allowing each grower to market all of his fruit. The growers claimed that several packing houses, including YCC, agreed to hold back a portion of the fruit available for market in order to maintain a higher price. The growers contended that when the California crop proved to be much larger than expected and prices dropped sharply, the growers' fruit that had not been marketed was sold at a lower price and they suffered a $440,000 loss.

Under section 44-1402 of the Arizona statute, "[a] contract, combination or conspiracy between two or more persons in restraint of, or to monopolize, trade or commerce, any part of which is within this state, is unlawful." Further, section 44-1412 states that "in construing this [statute], the courts may use as a guide interpretations given by the federal courts to comparable federal antitrust statutes." We review the interpretation of the Arizona statute de novo. Matter of McLinn, 739 F.2d 1395, 1397 (9th Cir.1984) (en banc). We have found no Arizona cases which address the question of antitrust injury posed here; therefore, we refer to federal court decisions in our analysis. See Three Phoenix Co. v. Pace Industries, Inc., 135 Ariz. 113, 659 P.2d 1258, 1260 (1983) (United States Supreme Court Sherman Act decisions used to construe Arizona antitrust statute).

In effect, YCC argues that, although the growers may have suffered a $440,000 loss on their crops, this injury is not " 'the type that the statute was intended to forestall.' " Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487-88, 97 S.Ct. 690, 696-97, 50 L.Ed.2d 701 (1977) (quoting Wyandotte Transp. Co. v. United States, 389 U.S. 191, 202, 88 S.Ct. 379, 386, 19 L.Ed.2d 407 (1967)). See also Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 540, 103 S.Ct. 897, 909, 74 L.Ed.2d 723 (1983); Blue Shield of Virginia v. McCready, 457 U.S. 465, 481-83, 102 S.Ct. 2540, 2549-50, 73 L.Ed.2d 149 (1982); Exhibitors' Service, Inc. v. American Multi-Cinema, Inc., 788 F.2d 574, 578 (9th Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be "the type of loss that the claimed violations ... would be likely to cause."

Cir.1986); Bubar v. Ampco Foods, Inc., 752 F.2d 445, 449 (9th Cir.), cert. denied, 472 U.S. 1018, 105 S.Ct. 3481, 87 L.Ed.2d 616 (1985).

Brunswick, 429 U.S. at 489, 97 S.Ct. at 697 (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 125, 89 S.Ct. 1562, 1577, 23 L.Ed.2d 129 (1969)) (emphasis in original); Blue Shield, 457 U.S. at 482, 102 S.Ct. at 2550.

Here, the growers' loss did not stem from anticompetitive actions. If the alleged conspiracy had been successful, the growers would have benefitted from the artifically higher prices for their fruit. ¹ The growers sought damages for the profits they would have realized had competition been reduced. This is not the type of injury that the statute was intended to forestall. Blue Shield, 457 U.S. at 482, 102 S.Ct. at 2550; Brunswick, 429 U.S. at 488, 97 S.Ct. at 697; Aurora Enterprises, Inc. v. National Broadcasting Co., 688 F.2d 689, 692-93 (9th Cir.1982). Thus, we hold as a matter of law that the growers, by failing to demonstrate antitrust injury, failed to state a claim under the Arizona antitrust statute and...