Mid-West Underground Storage, Inc. v. Porter

• Decision Date: 06 September 1983
• Docket Number: 81-1049,MID-WEST,Nos. 81-1034,M-P,s. 81-1034
• Citation: 717 F.2d 493
• Parties: 1983-2 Trade Cases 65,598 UNDERGROUND STORAGE, INC., Plaintiff-Appellee Cross-Appellant, v. Louis PORTER, Hillside Underground Storage, Inc., Hillside, Ltd., and Dalco Petroleum, Inc., Defendants-Appellants Cross-Appellees. andPETROLEUM, LTD., Defendant Cross-Appellee, v. Bill P. MOON and Walter E. Scott, Counterclaim Defendants Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 493

717 F.2d 493

1983-2 Trade Cases 65,598

MID-WEST UNDERGROUND STORAGE, INC., Plaintiff-Appellee Cross-Appellant, v. Louis PORTER, Hillside Underground Storage, Inc., Hillside,

Ltd., and Dalco Petroleum, Inc.,

Defendants-Appellants Cross-Appellees.

and

M-P PETROLEUM, LTD., Defendant Cross-Appellee, v. Bill P. MOON and Walter E. Scott, Counterclaim Defendants Appellees.

Nos. 81-1034, 81-1049.

United States Court of Appeals Tenth Circuit.

Sept. 6, 1983.

John T. Conlee, Wichita, Kan., and Floyd L. Walker, Tulsa, Okl. (Thomas D. Kitch, Wichita, Kan., with them on brief), for defendants-appellants, cross-appellees.

Gerald Sawatzky, Wichita, Kan. (Dwayne C. Pollard of Blackstock, Joyce, Pollard, Blackstock & Montgomery, Tulsa, Okl., with him on brief), of Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., for plaintiff-appellee, cross-appellant.

Before HOLLOWAY, McKAY and LOGAN, Circuit Judges.

LOGAN, Circuit Judge.

The plaintiff, Midwest Underground Storage, Inc., brought an action against its former president Francis G. Melland, a former stockholder Louis Porter, and various entities controlled by Melland or Porter, alleging that the defendants violated Sec. 1 of the Sherman Act by conspiring to engage in unfair competition for the purpose of eliminating Midwest as a competitor. Midwest also alleged that the defendants' conduct constituted business torts under state law. Porter counterclaimed against Midwest and stockholders Bill Moon and Walter Scott. Prior to trial, defendants Melland and M-P Petroleum, Inc. settled with Midwest and were dismissed from the action. The case was submitted to the jury on special interrogatories. The jury found in favor of Midwest on the antitrust claim in the amount of $250,000 and on the other claims in the amount of $3,911,637; the jury denied Porter's counterclaim. After various motions and orders the court entered final judgment on the verdict, trebling the antitrust award to $750,000 and awarding Midwest the $3,911,637 on the other claims but refusing to treble it. Prior to entering final judgment the court concluded that it lacked in personam jurisdiction over M-P Petroleum, Ltd. and dismissed M-P from the action. Both Midwest and the defendants appealed. The issues on appeal are (1) whether the district court erred in denying the defendants' motion for directed verdict on the antitrust claim, (2) whether the court erred in refusing to order a new trial on the state law claims, and (3) whether the court erred in refusing to enter judgment on the state law claims against defendants other than Porter and in holding that it lacked in personam jurisdiction over M-P Petroleum, Ltd.

Midwest was formed in 1969 to develop underground facilities for the storage of liquid petroleum gas (LPG) products. Fifty percent of the stock was originally controlled by Moon, Scott, and Porter, who held equal numbers of shares. The remaining stock was held by Melland and three others, each of whom owned 1/8 of the corporation's outstanding shares. Melland became president of Midwest and directed the construction and the operation of the facilities. In 1973, after Scott, Moon, and Porter had a falling-out, Porter transferred his ownership interest in Midwest to Scott and Moon. Thereafter, Melland and Porter jointly engaged in various business activities, ultimately forming a corporation to operate competing underground storage facilities. When certain of Melland's activities were challenged as being in derogation of his fiduciary duties as president of Midwest at a stockholders meeting in May 1974, he resigned the presidency of Midwest. Moon became president of Midwest, and Midwest argues that only then did it become aware of the extent to which Melland had violated his fiduciary duties. Midwest's complaint alleged that the defendants conspired to use Melland's position as president of Midwest to eliminate Midwest as a competitor by diverting corporate opportunities, by failing to expand Midwest, and by otherwise using Midwest for personal gain.

I

The defendants contend that the district court erred in refusing to direct a verdict against Midwest on the antitrust claim. They argue that the complaint does not state a per se violation and that Midwest failed to prove injury to competition as required under rule of reason analysis. Asserting that a per se violation was alleged and proven and that the record reflects injury to competition, Midwest argues that the record adequately supports the jury's finding of liability under Sec. 1 of the Sherman Act. We turn first to whether the conspiracy alleged constitutes a per se violation.

A

The per se instruction Midwest sought and the court refused was:

"In this case, if you find that one or more defendants combined or conspired with another, such as Francis G. Melland, to use Melland's position as president and manager of plaintiff to cripple plaintiff's operations with the intent to eliminate plaintiff as a viable competitor, then such defendant or defendants are guilty of a per se violation of the federal statute, and are liable for the damages caused to plaintiff."

App. I, 92. Midwest argues that such a conspiracy is a per se violation because it is "horizontal in nature for the purpose of excluding plaintiff from competition." Brief of Plaintiff-Appellee and Cross-Appellant at 46. The contention that a horizontal conspiracy to suppress competition through the elimination of a competitor by unfair means constitutes a per se violation is derived from Albert Pick-Barth Co. v. Mitchell Woodbury Corp., 57 F.2d 96 (1st Cir.1932), cert. denied, 286 U.S. 552, 52 S.Ct. 503, 76 L.Ed. 1288 (1932). ¹ Some courts have viewed this Court's decision in Perryton Wholesale, Inc. v. Pioneer Distributing Co., 353 F.2d 618 (10th Cir.1965), cert. denied, 383 U.S. 945, 86 S.Ct. 1202, 16 L.Ed.2d 208 (1966), as adopting the Pick-Barth per se rule. See, e.g., Havoco of America, Ltd. v. Shell Oil Co., 626 F.2d 549, 555 (7th Cir.1980); Northwest Power Products, Inc. v. Omark Industries, Inc., 576 F.2d 83, 86 (5th Cir.1978), cert. denied, 439 U.S. 1116, 99 S.Ct. 1021, 59 L.Ed.2d 75 (1979). But in Craig v. Sun Oil Co., 515 F.2d 221, 224 (10th Cir.1975), cert. denied, 429 U.S. 829, 97 S.Ct. 88, 50 L.Ed.2d 92 (1976), we said Perryton Wholesale "is not necessarily a per se case despite the citation of the First Circuit cases." This Circuit has not held that a conspiracy to eliminate a competitor by unfair means constitutes a per se violation, and we decline to do so now.

Generally, conduct alleged to violate the Sherman Act is scrutinized under the rule of reason rather than the per se rule, and "departure from the rule-of-reason standard must be based upon demonstrable economic effect." Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 58-59, 97 S.Ct. 2549, 2561-2562, 53 L.Ed.2d 568 (1977). "It is only after considerable experience with certain business relationships that courts classify them as per se violations of the Sherman Act." United States v. Topco Associates, Inc., 405 U.S. 596, 607-08, 92 S.Ct. 1126, 1133-1134, 31 L.Ed.2d 515 (1972). Per se rules are fashioned to promote litigation efficiency and business certainty by prohibiting conduct that is characterized by a "pernicious effect on competition and lack of any redeeming virtue." Northern Pacific Railway v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). However, despite the ominous tenor of the phrase "conspiracy to eliminate a competitor by unfair means," such conspiracies have not been shown to be consistently anticompetitive; they may actually have a beneficial effect on competition by facilitating new entry or otherwise decreasing concentration. See, e.g., Northwest Power Products, Inc. v. Omark Industries, Inc., 576 F.2d at 90-91.

"The difficulty with [the per se] approach is that the alleged conspiracy tends to be a spurious one, often between the defendant and parts of his own enterprise. Given, moreover, that the hiring of a rival's employees is not ordinarily exclusionary, even when done by a monopolist, characterizing the employment as a conspiracy seems little more than a semantic trick that is inconsistent with employee mobility. Many courts have wisely stepped back from the per se holdings of the earlier cases, recognizing that such conduct is not always exclusionary."

3 P. Areeda & D. Turner, Antitrust Law Sec. 828b, at 323 (1978) (footnotes omitted). The conspiracy alleged here appears to be of the "spurious" type: the actors are Porter, Melland, and corporations they jointly control. The conspiracy is not one of erstwhile competitors combining to supplant competition with cooperation. Some of the defendants are not in the relevant geographic market. Others did not exist prior to Melland's resignation. None competes with other defendants. Conspiracies of the type alleged here are not consistently exclusionary and do not carry the same trappings that characterize conduct treated under the per se rule.

Other considerations also militate against applying per se analysis to a conspiracy to eliminate a competitor by unfair means. First, "the definition of 'unfair means' is so vague that the Pick-Barth cases fail to draw the bright line of illegality which is essential if a per se rule is to achieve its purpose as a guide to business planning." Northwest Power Products, 576 F.2d at 90. Second, as noted in Northwest Power Products, the Sherman Act is intended to prevent restraints on competition, whereas "[u]nfair competition is still competition and the purpose of the law of unfair competition is to impose restraints on that competition." Id. at 88. There is, therefore, fundamental conflict between antitrust and unfair competition law; this counsels against basing per se illegality under the Sherman Act on the violation of unfair competition laws. A related difficulty is isolating the impermissible "intent to eliminate a competitor" from the...