Klo-Zik Co. v. General Motors Corp.

• Decision Date: 30 December 1987
• Docket Number: Civ. A. No. P-75-45-CA.
• Citation: 677 F. Supp. 499
• Parties: KLO-ZIK CO. & Texas-Continental Express, Inc., Moore Brothers, Suco, R.L. Moore, Michael J. Moore, Charlotte Moore and Rocky M. Moore v. GENERAL MOTORS CORP., d/b/a Detroit Diesel Allison; Lone Star Peterbilt Truck Sales, Inc.; Stewart & Stevenson Services, Inc. v. PACCAR, INC., Third Party Defendant.
• Court: U.S. District Court — Eastern District of Texas

677 F. Supp. 499

KLO-ZIK CO. & Texas-Continental Express, Inc., Moore Brothers, Suco, R.L. Moore, Michael J. Moore, Charlotte Moore and Rocky M. Moore v. GENERAL MOTORS CORP., d/b/a Detroit Diesel Allison; Lone Star Peterbilt Truck Sales, Inc.; Stewart & Stevenson Services, Inc. v. PACCAR, INC., Third Party Defendant.

Civ. A. No. P-75-45-CA.

United States District Court, E.D. Texas, Paris Division.

December 30, 1987.

COPYRIGHT MATERIAL OMITTED

Jim D. Lovett, Lovett & Rodgers, Paris, Tex., for plaintiffs.

Robert W. Jordan, Baker & Botts, Dallas, Tex., and J.D. McLaughlin, McLaughlin, Hutchison & Hunt, Paris, Tex., for Stewart & Stevenson Services, Inc.

Robert F. Ruckman, Jackson, Walker, Winstead, Cantwell & Miller, Dallas, Tex., for Lone Star Peterbilt.

Barbara Lynn, Tyler Baker and Corbett F. Bryant, Jr., Carrington, Coleman, Sloman & Blumenthal, Dallas, Tex., and Hardy Moore, Paris, Tex., for General Motors Corp.

Jim Cowles and Brent Cooper, Cowles & Thompson, Dallas, Tex., for Paccar, Inc.

MEMORANDUM OPINION

PAUL N. BROWN, District Judge.

Introduction

In this action, originally filed in 1975, plaintiffs allege antitrust violations, as well as a host of state law claims, against defendants General Motors Corporation ("GMC"), Lone Star Peterbilt Truck Sales, Inc. ("Lone Star") and Stewart & Stevenson Services, Inc. ("S & S"). Plaintiffs' claims originate from the purchase and repair of certain tractor-trailer trucks. These trucks were purchased from Lone Star in 1974, contained Detroit Diesel Allison ("DDA") 350 T engines manufactured by GMC and were serviced by S & S.

Plaintiffs allege that the trucks did not operate properly and were never repaired, necessitating the instant suit. In 1977, defendants moved for partial summary judgment as to certain of plaintiffs' claims. The ruling on these motions was stayed so that discovery could be pursued. Further delay was created when plaintiffs' attorney had his office destroyed in a fire. In April of 1986, defendants reasserted their motions for partial summary judgment. This opinion is a resolution of these motions.

I. Summary Judgment Standard

The granting of summary judgment is proper if "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The party seeking summary judgment carries the burden of demonstrating that there is no actual dispute as to any material fact in the case. This burden does not require the moving party to produce evidence showing the absence of a genuine issue of material fact. Celotex Corporation v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). The moving party satisfies its burden by "pointing out to the District Court ... that there is an absence of evidence to support the nonmoving party's case." Id.

Once the moving party has satisfied its burden, the nonmovant must "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). If the nonmovant fails to set forth specific facts in support of allegations essential to that party's claim and on which that party will bear the burden of proof, then summary judgment is appropriate. Celotex, 106 S.Ct. at 2552-53. Even if the nonmovant brings forth evidence in support of its allegations, the summary judgment will be appropriate "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) (citations omitted).

While in the past summary procedures regarding complex antitrust issues have been used sparingly, recent Supreme Court decisions have made it clear that summary judgment is appropriate in antitrust suits where the plaintiff fails to establish genuine issues of material fact bearing on the elements of the case. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

II. Antitrust Claims

A. Tying Arrangement

Plaintiffs have alleged a variety of antitrust violations to have been committed by defendants. One of plaintiffs' claims is that the sale of truck engines with warranties covering those engines constituted an illegal tying arrangement.¹

A tying arrangement is an agreement by a party to sell one product (the tying product) but only on the condition that the buyer also purchase a different (or tied) product. Northern Pacific Railway Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). As the Supreme Court has recently stated:

The essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms.

Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 1558, 80 L.Ed.2d 2 (1984). Arrangements of this type pose an unacceptable risk of hurting competition in the tied product market and are unreasonable "per se". Id., 104 S.Ct. at 1556. While there is some confusion regarding the elements of a per se tying violation², there is no question that a plaintiff must establish the existence of: 1) two separate products, the tying product and the tied product; 2) sufficient market power in the tying market to coerce the purchase of the tied product; and 3) involvement of a not insubstantial amount of interstate commerce in the tied market. Id. at 1560-61. The Fifth Circuit has further required that a plaintiff show his purchase of the tied product resulted from actual coercion based on the defendant's economic power in the tying product market.³Crossland, 711 F.2d at 723; Bob Maxfield, Inc., 637 F.2d at 1037; Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307, 1327 (5th Cir.1976). Defendants have challenged plaintiffs' evidence on each of these elements.

1. Two Products

Plaintiffs contend that defendants have employed an illegal tying arrangement by tying the sale of a warranty to the sale of truck engines.⁴ Defendants assert that the truck engines and the warranties that cover the engines are actually one product. Therefore, defendants contend, plaintiffs are unable to establish a per se tying arrangement.

In Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984) the Supreme Court held that the defendant hospital's practice of requiring patients to use the hospital's own anesthesiologists was not an illegal tying arrangement. The Court did, however, find that the hospital services and the anesthesiological service were separate services. Id. 104 S.Ct. at 1564. In reaching the conclusion that two separate services were involved, the Court revealed that "whether one or two products are involved turns not on the functional relation between them, but rather on the character of the demand for the two items." Id. at 1562.

The Court explained that the underlying rationale for the rule prohibiting tying arrangements is to prevent foreclosure of competition on the merits in the tied product market. Id. at 1563. Therefore, there can be no tying arrangement unless two distinct product markets have been linked. Id. Thus:

The answer to the question whether petitioners have utilized a tying arrangement must be based on whether there is a possibility that the economic effect of the arrangement is that condemned by the rule against tying — that petitioners have foreclosed competition on the merits in a product market distinct from the market for the tying item. footnote omitted Thus ... no tying arrangement can exist unless there is a sufficient demand for the purchase of the tied product separate from the tying product to identify a distinct product market in which it is efficient to offer the tied product separately from the tying product. footnote omitted

Id.

The question in the present situation is whether there is sufficient demand from buyers to purchase a warranty on a DDA engine separately from the purchase of a DDA engine. The sufficiency of the demand must be such that it would be efficient to offer a warranty on a DDA engine separate and without relation to the sale of a DDA engine.⁵

When the present situation is examined in light of the test set out, it becomes apparent that plaintiffs' evidence cannot withstand a motion for summary judgment. Plaintiffs state that because the buying public demands warranties on the truck engines which are purchased, it is economic common sense that there is room for competition. Further, plaintiffs point to the fact that defendant S & S provided plaintiffs an "Extended Service Policy" to support the proposition that a warranty can be provided by one other than the engine's manufacturer. Also, plaintiffs contend that because a portion of the purchase price of a DDA engine is allocated to the cost that will arise from the warranty, the warranty must be a separate product.

The evidence pointed to by plaintiffs does not raise a fact issue concerning the existence of two separate products. Plaintiffs have failed to point to any evidence which shows that there is sufficient demand for the purchase of a truck engine warranty from someone other than the manufacturer of the engine. Further, plaintiffs have failed to point out any evidence showing that it would be efficient for truck engine warranties to be provided separate from the engines themselves.

Therefore, plaintiffs have failed to provide any evidence that two distinct product markets have been linked. In the absence of evidence showing two distinct product markets, the rationale behind the tying rule — foreclosure of competition in a distinct product market — there can be no illegal tie.

2. Market Power

Even if the warranty on a...