Kelco Disposal, Inc. v. Browning-Ferris Industries of Vermont, Inc.

Decision Date21 April 1988
Docket NumberD,BROWNING-FERRIS,No. 563,563
Citation845 F.2d 404
Parties, 1988-1 Trade Cases 67,974 KELCO DISPOSAL, INC. and Joseph Kelley, Plaintiffs-Appellees, Cross-Appellants, v.INDUSTRIES OF VERMONT, INC. and Browning-Ferris Industries, Inc., Defendants-Appellants, Cross-Appellees. ockets 87-7754 and 87-7758.
CourtU.S. Court of Appeals — Second Circuit

Gordon B. Spivak, New York City (Thomas D. Brislin, Coudert Brothers, New York City, Robert B. Hemley, Norman Williams, Dennis R. Pearson, Gravel & Shea, Burlington, Vt., of counsel), for plaintiffs-appellees, cross-appellants.

J. Paul McGrath, New York City (Dewey, Ballantine, Bushby, Palmer & Wood, New York City, Donald F. Turner, Washington, D.C., Douglas Richards and Robert Gerety, Plante, Richards, Hanley & Gerety, Springfield, Vt., of counsel), for defendants-appellants, cross-appellees.

Before FEINBERG, Chief Judge, PRATT, Circuit Judge, and McLAUGHLIN, District Judge for the Eastern District of New York, sitting by designation.

McLAUGHLIN, District Judge:

Plaintiff sued under both the federal antitrust laws and Vermont tort law. A jury found against defendants on both counts and imposed $6 million in punitive damages on the state claim. The trial court denied defendants' motions for judgment notwithstanding the verdict or a new trial or remittitur; the court also ordered plaintiff to elect between its antitrust remedy (treble damages, attorneys' fees, and costs) and its state remedy (compensatory and punitive damages). The parties have cross-appealed. For the reasons discussed below, we affirm.

FACTS

This case involves competition in the "roll-off" waste collection business in Burlington, Vermont. Roll-off waste collection is usually performed at large industrial locations and construction sites with the use of a large truck, a compactor, and a container that is much larger than the typical "dumpster."

Browning-Ferris Industries, Inc. ("BFI") and Browning-Ferris Industries of Vermont, Inc. (collectively "defendants") operate a commercial and industrial waste collection business from BFI's headquarters in Houston, Texas. In fiscal year 1986, BFI had revenues in excess of $1.3 billion, net income of approximately $137 million, and net assets of approximately $980 million.

In 1973 defendants made two fateful decisions: they decided to enter the waste disposal business in Burlington and they appointed plaintiff Joseph Kelley to be district manager for the region. In 1976 defendants began to provide roll-off service in Burlington, and by 1980 they controlled 100% of the Burlington roll-off market.

Kelley left defendants in 1980, and formed his own waste disposal company, plaintiff Kelco Disposal, Inc. ("Kelco"). Soon thereafter, Kelco began to compete head-to-head with defendants in the Burlington roll-off market. In one year Kelco captured 37.6% of the market. In 1982 the figure rose to 42.7%. During 1982, defendants' new Burlington manager, Richard Mowbray, received orders from Michael Gustin, his boss in Boston, to "Put [Kelley] out of business. Do whatever it takes. Squish him like a bug." Defendants' Burlington salesman was also ordered to put Kelley out of business and was told that if "it meant give [services] away, give [them] away."

In the fall of 1982, accordingly, defendants cut their roll-off haul prices from $117 to $65, a reduction of about 40%. This price-cutting policy lasted for approximately six months, although some contracts made during this period extended these low prices into 1984. Defendants' market share, which had declined precipitously from 1980 to 1982, remained relatively stable during the 1982-84 period. Kelco's and defendants' combined revenues from the Burlington market were roughly $440,000. By 1985 Kelco had captured almost 56% of the market. In that year defendants left the market, and sold out to a third party. Since then, Kelco and this other company have been the only two competitors in the Burlington roll-off market. From 1981 to 1985, defendants and Kelco were the only competitors in the market.

In 1984, Kelley and Kelco brought this action. The complaint alleged that defendants had attempted to monopolize the Burlington roll-off market, in violation of section 2 of the Sherman Act, as amended, 15 U.S.C. Sec. 2 (1982), and that defendants' conduct constituted intererence with contractual relations under Vermont tort law.

Kelley's claims were severed from Kelco's, and Kelco's antitrust and tort claims were tried to a jury. Kelco's antitrust theory was that defendants had engaged in predatory pricing. At trial, Kelco's expert witness testified that from 1982 to 1984 defendants' average variable cost for roll-off service was roughly $104 per haul. The expert included as variable costs disposal fees; drivers' salaries; depreciation of equipment, including trucks, containers, and compactors; selling and administrative costs; and national overhead. In addition, numerous statements by defendants' officials that defendants had intended to put plaintiff out of business were introduced.

After a six-day trial on the liability issue, the jury found against defendants on both counts. A one-day trial on damages followed, and the jury returned a verdict for $51,146 on the antitrust claim, and $51,146 in compensatory damages and $6 million in punitive damages on the state claim.

Defendants then moved for judgment n.o.v. or, in the alternative, for a new trial or remittitur. By order dated August 11, 1987 the motions were denied. An amended order of judgment dated October 19, 1987 awarded Kelco $153,438 in treble damages and $212,500 in attorneys' fees and costs on the antitrust claim under section 4 of the Clayton Act, 15 U.S.C. Sec. 15 (1982) or, in the alternative, $6,066,082.74 in compensatory and punitive damages on the state claim. Kelco was ordered to elect between the alternative federal and state remedies.

On appeal defendants have mounted a three-pronged attack on the judgment: (1) the jury's liability verdict was not supported by sufficient evidence; (2) the trial court's jury charge was erroneous as a matter of law; and (3) the punitive damages award must be either reversed or remitted.

Kelco's cross-appeal argues that it is entitled under federal law to attorneys' fees and costs, even if it elects state-law compensatory and punitive damages over the more modest federal treble damage award.

DISCUSSION
I. Liability and Punitive Damages
A. Attempted Monopolization
1. Sufficiency of the Evidence

Judgment n.o.v. is warranted where the verdict is so unsupported by the evidence that it "could only have been the result of sheer surmise and conjecture," or where the movant's position is supported by such overwhelming evidence that a "reasonable and fair minded [person] could not [have] arrived at a verdict against [it]." Mattivi v. South African Marine Corp., "Huguenot", 618 F.2d 163, 168 (2d Cir.1980).

A claim of attempt to monopolize has three elements: "(1) anticompetitive or exclusionary conduct; (2) specific intent to monopolize; and (3) a 'dangerous probability' that the attempt will succeed." International Distribution Centers, Inc. v. Walsh Trucking Co., 812 F.2d 786, 790 (2d Cir.) ("IDC ") (quoting Northeastern Telephone Co. v. AT & T, 651 F.2d 76, 85 (2d Cir.1981), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982)), cert. denied, --- U.S. ----, 107 S.Ct. 3188, 96 L.Ed.2d 676 (1987). Defendants argue that Kelco failed to prove any of these elements at trial.

Kelco claims that defendants' anticompetitive or exclusionary conduct consisted of predatory pricing, and introduced evidence that defendants' price of $65 per roll-off haul was below its average variable cost of roughly $104 per haul. Defendants argue that Kelco's $104 figure was inflated because Kelco's expert witness mistakenly characterized certain fixed costs as variable in making his computations. Asserting that depreciation of equipment, selling and administrative costs, and national overhead should have been considered fixed costs, defendants contend that their true average variable cost was less than $50 per haul, well below their $65 haul charge.

A firm engaged in predatory pricing bites the bullet and forgoes present revenues to drive a competitor from the market. Its intent, of course, is to recoup lost revenues through higher profits when it succeeds in making the environment less competitive. Northeastern Telephone, 651 F.2d at 86 (quoting 3 P. Areeda & D. Turner, Antitrust Law p 711b, at 151 (1978)); see Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484, 493, 93 L.Ed.2d 427 (1986). Prices that are below reasonably anticipated marginal cost, and its surrogate, reasonably anticipated average variable cost, see Northeastern Telephone, 651 F.2d at 88, are presumed predatory. Id. By definition variable costs are dependent on the firm's output, while fixed costs are not. See id. at 86. The characterization of certain costs as either variable or fixed frequently becomes a battleground where the plaintiff proceeds on a predatory pricing theory. The reason is obvious: the higher a party's average variable cost, the more likely it is that the party has priced below that cost.

Defendants argue that equipment depreciation should have been considered a fixed cost because defendants' accountants have always treated it so. Passing, for the moment, the bootstrap feature of this argument, the general legal rule is that depreciation caused by use is a variable cost, while depreciation through obsolescence is a fixed cost. See id. The characterization of legitimately disputed costs is a question of fact for the jury. Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc., 735 F.2d 884, 891 n. 6 (5th Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985); see William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014,...

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