M.A.P. Oil Co., Inc. v. Texaco Inc.
| Decision Date | 09 November 1982 |
| Docket Number | No. 80-4259,80-4259 |
| Citation | 691 F.2d 1303 |
| Parties | 1982-83 Trade Cases 65,029, 11 Fed. R. Evid. Serv. 1602 M.A.P. OIL COMPANY, INC., a California corporation, d/b/a Amendt Oil Company; A.W. Laughton, an individual; Bob Mitchell, an individual; T.B. Smith Company, Inc., a California corporation; Steuben Petroleum, Inc., a California corporation; McWhirter Distributing Company, Inc., a California corporation; Louis V. Colombani, an individual; Cook & Cooley, Inc., a California corporation; Ernst Enterprises, Inc., a California corporation; W. C. Goolsby, Inc., a California corporation; Polpet, Inc., a California corporation; Ernst Distributing Inc., a California corporation; L.A. Calleri, an individual, d/b/a Calleri Oil Company; J.E. DeWitt, a California corporation, Plaintiffs-Appellants, v. TEXACO INC., a Delaware corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
David M. Zeff, Froneberger, Bonner & Zeff, San Francisco, Cal., for plaintiffs-appellants.
David A. Luttinger, White Plains, N.Y., argued, for defendant-appellee; Eric Watt Wiechmann, Cummings & Lockwood, Stamford, Conn., on brief.
On Appeal from the United States District Court for the Northern District of California.
Before KILKENNY and ANDERSON, Circuit Judges, and JAMESON, * District Judge.
This action was filed by twenty-five wholesale gasoline distributors and commission agents, alleging antitrust and regulatory violations by Texaco Inc. ("Texaco") in the marketing of Texaco gasoline. The regulatory claims allege violations of the Mandatory Petroleum Allocation and Price Regulations, 10 C.F.R. Secs. 210-12, promulgated under the Emergency Petroleum Allocation Act of 1973. 15 U.S.C. Secs. 751-760h. The antitrust claims allege actual and attempted monopolization under Sec. 2 of the Sherman Act. 15 U.S.C. Sec. 2. This appeal by fourteen of the plaintiffs from an adverse directed verdict concerns only the Sherman Act Sec. 2 claims. 1
Texaco is a major national corporation involved in all phases of the petroleum industry, from production of crude oil through retailing of gasoline and other refined petroleum products. Its customers fall into three categories or classes of trade. The "retailer" category is composed of numerous independent businessmen who purchase Texaco gasoline from Texaco and resell it to motorists through Texaco service stations. Texaco also sells gasoline directly to a "commercial consumer" class of trade, the members of which consume the gasoline in their own businesses. Taxi fleets and agricultural accounts are examples of commercial consumers. The third category consists of "independent wholesale distributors" who purchase gasoline from Texaco for resale to their own customers.
Five of the plaintiffs fall into the third category described above. They are independent wholesale distributors who, for several years, purchased gasoline from Texaco at a distributor level price (referred to as distributor tankwagon or "DTW"). The remaining plaintiffs fall into none of the classes described above. They are consignees or tank truck dealers (collectively referred to as "commission agents") who neither bought nor sold gasoline but were paid a commission by Texaco based on the number of gallons they delivered to retail dealers. Although plaintiffs emphasize on this appeal that they provided additional significant "distribution services" other than the simple delivery of gasoline, the primary function of both distributors and commission agents was to deliver Texaco gasoline to retailers.
Texaco also delivers its gasoline directly to retail dealers. This method of delivery is performed by salaried Texaco employees. Texaco retailers who receive direct deliveries pay a retail tankwagon ("RTW") price, as opposed to the DTW charged independent distributors. Because distributors and commission agents offered discounts and allowances to certain high-volume retailers, the price to the retailer for a gallon of Texaco gasoline varied throughout the relevant region.
In January, 1977, Texaco instituted a price increase on all sales of its gasoline. While the RTW increased only 1/2 cent per gallon, the DTW increased 1 cent for regular gasoline and 1 1/2 cents for premium. The commission agents were affected by a 1/2 cent per gallon decrease in commissions for deliveries of Texaco gasoline. It is this unequal price and commission change--an action which had the effect of shaving the distributors' and commission agents' competitive pricing edge in favor of Texaco's directly delivered operations--that formed the basis for plaintiffs' claims.
Plaintiffs' complaint asserted two Sherman Act Sec. 2 violations. First, plaintiffs contended that Texaco possessed a practical monopoly over the sale of Texaco brand gasoline; that plaintiffs competed with Texaco in a separate market consisting of "distribution services" of the gasoline; and that Texaco used its monopoly power in the first market--sales--to gain a competitive advantage in the second market--distribution services. Second, plaintiffs contended that Texaco's pricing actions demonstrated an attempt to monopolize the market for distribution services and wholesaling of Texaco gasoline.
Following some four weeks of trial, Texaco moved for a directed verdict, contending that plaintiffs had failed to present sufficient evidence upon which a reasonable jury could find either a first or a second market. The district court concluded that plaintiffs had presented sufficient evidence of a first market; however, as to the second market, the court concluded:
[T]he evidence from plaintiffs themselves would not justify a reasonable juror in concluding that distribution services exist as a distinct, separate and second market. Their testimony clearly demonstrates that the "distribution services" were an integral part of the sale of gasoline to retailers and bulk consumers.
The court directed a verdict in favor of defendants, holding that plaintiffs' failure to establish a second market was fatal to both the monopolization and the attempted monopolization theories.
On appeal, plaintiffs contend the evidence of a second market was sufficient for jury assessment and, in any event, that the attempted monopolization claim requires no evidence of a second market. Certain of the court's evidentiary rulings are also asserted as error. We take these issues up in order.
Monopolization under Sec. 2 of the Sherman Act can assume a number of forms. Among those forms is the theory that a firm violates Sec. 2 by using its monopoly power in one market to gain an unwarranted competitive advantage in another. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 275-76 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980); Greyhound Computer Corp. v. International Business Machines Corp., 559 F.2d 488, 492-97 (9th Cir.1977), cert. denied, 434 U.S. 1040, 98 S.Ct. 782, 54 L.Ed.2d 790 (1978). As with any monopolization claim, the proponent of this theory must identify the relevant product and geographic markets 2 as a threshold requirement. Kaplan v. Burroughs Corp., 611 F.2d 286, 291 (9th Cir.1979), cert. denied, 447 U.S. 924, 100 S.Ct. 3016, 65 L.Ed.2d 1116 (1980). Moreover, the market identification burden is compounded under this theory because proof of the existence of two separate product or service markets is necessary.
Although the directed verdict was limited to the second market issue and consequently our review is similarly limited, a full understanding of the case requires a brief discussion of the first market as well. A natural reaction to a product market consisting solely of Texaco gasoline is to inquire why plaintiffs did not simply purchase gasoline from other suppliers. Plaintiffs offered evidence that a number of barriers precluded them from switching brands and suppliers. The trial court found that evidence of federal regulations, supply shortages, and preexisting barriers such as brand identification and contractual restraints could convince a reasonable jury that the sale of Texaco gasoline constituted a relevant product market. While we express no opinion on the correctness of that ruling, we will, for purposes of this opinion, assume that the sale of Texaco gasoline could constitute a relevant product market.
The central issue is whether a separate or submarket composed of "distribution services" existed apart from the "sale" market. The district court directed a verdict in favor of Texaco, finding insufficient evidence for jury consideration of a distribution service market. Our standard for determining the propriety of a directed verdict is the same as the district court's. California Computer Products, Inc. v. International Business Machines Corp., 613 F.2d 727, 734 (9th Cir.1979). The standard is whether or not, viewing the evidence as a whole and in the light most favorable to the nonmoving party, there is substantial evidence that could support a finding for the nonmoving party. Id. After carefully reviewing the record in light of this standard, we affirm the trial court's directed verdict.
Market definition can be broadly characterized in terms of the "cross-elasticity of demand" for or "reasonable interchangeability" of a given set of products or services. United States v. E.I. duPont de Nemours, 351 U.S. 377, 395, 76 S.Ct. 994, 1007, 100 L.Ed. 1264, 1281 (1956); Fount-Wip, Inc. v. Reddi-Wip, Inc., 568 F.2d 1296, 1301-02 (9th Cir.1978). "If the product and its substitutes are reasonably interchangeable by consumers for the same purposes, or if they have a high cross-elasticity of demand in the trade, they will be included in the same market ...." 3 J. von Kalinowski, Antitrust Laws and Trade Regulation Sec. 8.02[a], at 16-17 (1982). Reasonable interchangeability emphasizes the economic factors of use and physical characteristics,...
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