Magnus Petroleum Co., Inc. v. Skelly Oil Co., s. 78-1387

• Decision Date: 14 February 1979
• Docket Number: 78-1388,Nos. 78-1387,s. 78-1387
• Citation: 599 F.2d 196
• Parties: 1979-1 Trade Cases 62,666 MAGNUS PETROLEUM COMPANY, INC. and Marpat Corporation, Plaintiffs-Appellees, Cross-Appellants, v. SKELLY OIL COMPANY, Defendant-Appellant, Cross-Appellee. . Heard
• Court: U.S. Court of Appeals — Seventh Circuit

Page 196

599 F.2d 196

1979-1 Trade Cases 62,666

MAGNUS PETROLEUM COMPANY, INC. and Marpat Corporation Plaintiffs-Appellees, Cross-Appellants, v. SKELLY OIL COMPANY, Defendant-Appellant, Cross-Appellee.

Nos. 78-1387, 78-1388.

United States Court of Appeals Seventh Circuit.

Heard Feb. 14, 1979.

Decided May 23, 1979.

Rehearing En Banc Denied June 20, 1979.

W. Stuart Parsons, Milwaukee, Wis., for defendant-appellant, cross-appellee.

Irving I. Saul, Dayton, Ohio, for plaintiffs-appellees, cross-appellants.

Before CUMMINGS and SPRECHER, Circuit Judges, and LEIGHTON, District Judge. ^*

CUMMINGS, Circuit Judge.

This private antitrust action was brought in July 1973 by a Sheboygan, Wisconsin, gasoline and fuel oil distributor (Magnus) and the Company (Marpat) owning the land and buildings involved in the distributorship. ¹ Defendant Skelly Oil Company (Skelly) formerly was Magnus' supplier of gasoline, furnace oil and related products. ² In seeking damages in excess of $700,000 (before trebling under Section 4 of the Clayton Act, 15 U.S.C. § 15), plaintiffs asserted that the defendant violated Section 1 of the Sherman Act (15 U.S.C. § 1) and Section 3 of the Clayton Act (15 U.S.C. § 14).

According to the complaint, plaintiffs marketed Skelly's petroleum products in Sheboygan County, Wisconsin, and adjacent areas from 1964 until February 28, 1973, when Skelly terminated its relationship with plaintiffs. The parties stipulated that plaintiffs were both wholesale and retail gasoline distributors. In the former capacity, they were "jobbers," operating two bulk plants (storage facilities). One of these, in Haven, Wisconsin (seven miles from Sheboygan), was owned by Magnus. Another facility, located in Sheboygan, was leased by Magnus from Skelly. In its capacity as a jobber, Magnus on February 29, 1964, entered into a "Franchise Sales Agreement" with Skelly. Under this agreement, Magnus was committed to buy and Skelly to sell and deliver certain specified quantities of gasoline each year. ³ Magnus also agreed to sell and deliver petroleum products to four specified Skelly-owned stations in the Sheboygan area.

The complaint states that the mainstay of plaintiffs' retail distributorship was the fee ownership of four retail gasoline service stations in the Sheboygan area. Three of those were financed through a plan offered by Skelly to its jobbers. Plaintiffs' complaint describes this financing arrangement as

"a base lease for a term of fifteen (15) years running from plaintiff, MARPAT, to defendant, SKELLY, the rentals on which base leases are assigned to the financing source, ⁴ coupled with a sub-lease from defendant, SKELLY, to plaintiff MAGNUS also for fifteen (15) years but each such sub-lease being subject to an earlier termination by SKELLY should MAGNUS purchase less than 100,000 gallons annually of Skelly branded gasoline for resale at that respective service station" (Par. 16 of the complaint).

Skelly's rent under the base lease thus secured Magnus' obligation to the lender. According to plaintiffs, the sub-lease and obligation to purchase 100,000 gallons of gasoline annually from Skelly could not be terminated by Magnus even if Marpat paid off the entire amount due for the purchase of a station. Additionally, plaintiffs produced testimony that termination of the "Franchise Sales Agreement" would make the entire amount due on the service stations payable in 60 days, but would not terminate the sub-lease and purchase obligation. Plaintiffs also asserted at trial that it is an industry-wide practice for branded oil companies to refuse to franchise jobbers or to finance branded stations if the franchisee still has a contract in force with another company. The Skelly-designed leases, considered in the context of the franchise agreements and the industry-wide "single distributorship" practice, allegedly violated Section 1 of the Sherman Act and Section 3 of the Clayton Act.

Plaintiffs assert that in 1970 Skelly refused to permit them to cancel the base leases and that Skelly terminated plaintiffs' distributorship on February 28, 1973, supposedly in furtherance of its then current desire to withdraw from marketing in Wisconsin. Plaintiffs charge that defendant's violations of the antitrust laws prevented them from distributing branded petroleum products of any other oil company. In addition to damages, plaintiffs sought declaratory and injunctive relief.

In March 1976, the district court denied defendant's pretrial motion for summary judgment based on the statute of limitations. In November 1976, after a ten-day trial, a jury awarded plaintiffs $185,000 in damages before trebling, and judgment was accordingly entered in plaintiffs' favor in the amount of $555,000, plus costs and reasonable attorney fees as provided in Section 4 of the Clayton Act. ⁵ Skelly's post-trial motions were denied in January 1978. In the accompanying opinion Judge Gordon held that the evidence could reasonably be interpreted to show that the three franchise sales agreements between Magnus and Skelly were implemented "so as to include a condition with Magnus not dealing in the gasoline of other suppliers" in violation of the exclusive dealing prohibition contained in Section 3 of the Clayton Act. ⁶ The district judge pointed out that the jury could have concluded that numerous other jobbers in the relevant market ⁷ were parties to financing arrangements with Skelly and were precluded from becoming jobbers for other suppliers, thus showing at least a potential lessening of competition under Section 3.

The district court also concluded that there was ample evidence from which the jury could have found that (1) the object of the financing arrangements between Skelly and its jobbers in that area was to restrain trade and (2) those arrangements revealed Skelly's anti-competitive intent in violation of Section 1 of the Sherman Act. ⁸

In addition, the court concluded that plaintiffs had shown that they were injured in their "business or property" within the meaning of Section 4 of the Clayton Act ⁹ because Magnus had demonstrated an attempt to purchase the Jackson Oil Company in Oshkosh, Wisconsin, and to become a Sunray DX franchisee in Oshkosh and Fond du Lac, Wisconsin, but was precluded from doing so by operation of the financing agreements between Magnus and Skelly.

Judge Gordon next found that there was sufficient evidence to support the jury's conclusion that Skelly's actions caused Magnus to lose the Jackson Oil and Sun franchise opportunities.

The district court decided that Magnus' evidence of damages because of its failure to acquire the Jackson Oil Company and to become a Sun franchisee was sufficient and that plaintiffs were not damaged until they were unable to obtain the Jackson Oil Company or a Sun franchise agreement in 1970, well within the four-year statute of limitations contained in Section 4B of the Clayton Act (15 U.S.C. § 15b).

Finally, the district court rejected Skelly's arguments with respect to the instructions and held that a one-month continuance between the close of the evidence and the final arguments did not require a new trial. 446 F.Supp. 874 (E.D. Wis. 1978). Defendant here appeals each of the district court's rulings except those relating to the statute of limitations, the instructions, and the continuance. We reverse.

I. No Violation of Section 3 of the Clayton Act

This part of our opinion will assume Arguendo that the franchise sales agreements between the parties tended substantially to foreclose competition in the relevant market. ¹⁰ Section 3 of the Clayton Act (note 6 Supra ) proscribes sales "on the condition, agreement or understanding" that the purchaser shall not deal in the goods of a competitor of the seller if its effect may be substantially to lessen competition. Plaintiffs contend that the three franchise sales agreements between them and Skelly violated this statute.

The first two agreements required plaintiffs to purchase 810,000 gallons of gasoline annually. In the third agreement, dated March 1, 1966, this amount was reduced to 701,000 gallons. None of the agreements contained an exclusive dealing clause nor required plaintiffs to purchase their total requirements of gasoline from Skelly, nor indeed any gallonage approaching plaintiffs' requirements. ¹¹ The last of these agreements was terminated by defendant effective on February 28, 1971, although Skelly continued to supply Magnus on a month-to-month basis until February 1973. ¹² During the years 1964-1971 plaintiffs never purchased anything approaching their requirements from defendant. ¹³ Because the agreements contained no exclusive dealing clause and did not require plaintiffs to purchase any amounts of gasoline that even approached their requirements, they did not violate Section 3 of the Clayton Act. See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580; Standard Oil Co. v. United States, 337 U.S. 293, 69 S.Ct. 1051, 93 L.Ed. 1371.

While their course of conduct might evince that the parties were violating Section 3 of the Clayton Act, the evidence here contravenes such a course of conduct because the quantity specified in the agreements amounted to less than 60-80 per cent of plaintiffs' total requirements and plaintiffs regularly purchased 30-50 per cent of their requirements from competitors of the seller. Therefore, no illegal course of conduct has been shown under Section 3 of the Clayton Act. McElhenney Co. v. Western Auto Supply Co., 269 F.2d 332, 338 (4th Cir. 1959). Here Skelly cancelled its last franchise sales agreement on December 28, 1970, effective on February 28, 1971, without any proof that it was selling plaintiffs their total requirements. ¹⁴

Although plaintiffs persuaded defendant to reinstate the franchise contract on a month-to-month basis, defendant gave plaintiffs another notice of termination February 28, 1973, because of severe credit problems with plainti...