Monahan's Marine, Inc. v. Boston Whaler, Inc., 88-1375

• Decision Date: 03 November 1988
• Docket Number: No. 88-1375,88-1375
• Citation: 866 F.2d 525
• Parties: , 1989-1 Trade Cases 68,422 MONAHAN'S MARINE, INC., Plaintiff, Appellant, v. BOSTON WHALER, INC., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 525

866 F.2d 525

57 USLW 2496, 1989-1 Trade Cases 68,422

MONAHAN'S MARINE, INC., Plaintiff, Appellant, v. BOSTON WHALER, INC., et al., Defendants, Appellees.

No. 88-1375.

United States Court of Appeals First Circuit.

Heard Nov. 3, 1988.

Decided Feb. 3, 1989.

As Modified on Denial of Rehearing March 13, 1989.

Stephen M. Trattner, Washington, D.C., with whom Robert D. Loventhal, Michael R. Hafitz and Loventhal & Hafitz, Braintree, Mass., were on brief, for appellant.

William F. Lee with whom Thomas N. O'Connor, Jane E. Serene and Hale and Dorr, Boston, Mass., were on brief, for appellees Boston Whaler, Inc., David R. Loveless and Perry Connolly.

Lauren E. Duca with whom William A. Zucker and Gadsby & Hannah, Boston, Mass., were on brief, for appellee Port Marine Center, Inc.

Before BREYER and SELYA, Circuit Judges, and CAFFREY, ^* Senior District Judge.

BREYER, Circuit Judge.

Monahan's Marine, Inc. (hereinafter "Monahan's"), a Massachusetts boat dealer, says that Boston Whaler, Inc. (hereinafter "Whaler"), a Massachusetts boat builder, sold some of its boats to competing Massachusetts dealers at lower prices and on better terms. Monahan's sued Whaler, two of its officers, and two competing dealers, claiming that this "discrimination" violated the Sherman Act, 15 U.S.C. Sec. 1 (1982). The district court granted summary judgment for all defendants, Monahan's Marine, Inc. v. Boston Whaler, Inc., 676 F.Supp. 379 (D.Mass.1987), and Monahan's now appeals. After examining the record, we can find no significant evidence of an agreement "in restraint of trade." See Sec. 1. Consequently, the district court correctly granted summary judgment for defendants.

I.

The parties, in their cross-motions for summary judgment, agreed that: (1) Monahan's retails expensive fishing boats in Weymouth, Massachusetts; (2) Monahan's has sold Whaler boats since 1975; (3) Whaler boats account for about 25 percent of Monahan's business; and (4) Monahan's competes with about 5 other New England Whaler dealers, including Falmouth Harbor, in Falmouth, Massachusetts, and Port Marine, in Danvers, Massachusetts.

Monahan's says that in 1981-1983 Whaler sold boats to Falmouth Harbor and Port Marine at prices lower than, and terms better than, it offered to Monahan's. Specifically, Monahan's says:

1. In August 1981 Whaler sent Falmouth several truckloads of boats without charging for delivery, and on credit, while Monahan's had to pay cash and pay for delivery, for similar boats.

2. In 1982 Whaler stored certain "listed" boats (boats with minor defects) in a shipyard that Falmouth controlled, permitting Falmouth to avoid transport costs, to have the boats in stock without paying for them first, and to sell the boats conveniently. Monahan's could not readily inspect and purchase these boats itself, and could only sell these boats by bringing customers to a competitor's shipyard.

3. In 1982 Whaler sold 31 boats to Port Marine at a 10 percent discount and without requiring payment in advance or charging for delivery, and did not make similar terms available to Monahan's until after the selling season was over.

4. Whaler extended its 1982-1983 "Fall Discount Program" prices to Port Marine, allowing Port an 8 percent discount on 51 boats, even though its order was not completed until after that program expired.

Monahan's adds that these "special deals" made it more difficult to sell Whaler boats, hurt its business, and eventually (after Monahan's complained) led Whaler to terminate it as a Whaler dealer. The record reveals, however, that, perhaps because of new entry, the number of Whaler dealers remained the same.

Whaler, in defense, argues that it made its "special deals" available to Monahan's as well as to Monahan's competitors. In our view, the record contains evidence sufficient to raise a triable issue of fact on this issue. But even if Monahan's shows that Whaler discriminated against it in this respect, Monahan's cannot win this lawsuit, for the evidence does not permit a finding of a "restraint of trade." See Sec. 1.

II.

Section 1 of the Sherman Act forbids (1) agreements ("every contract, combination ... or conspiracy") that are (2) "in restraint of trade." The only relevant agreements that the record shows in this case are Whaler's agreements to sell boats to Monahan's competitors at low prices. But those agreements, as far as the record reveals, are not "in restraint of trade." That is to say, a court, applying antitrust law's well known "rule of reason," could not conclude that the anticompetitive effects of the agreements outweigh their legitimate business justifications. See Business Electronics v. Sharp Electronics, --- U.S. ----, 108 S.Ct. 1515, 1521-22, 99 L.Ed.2d 808 (1988) (rule of reason applies to all vertical restraints of trade except price fixing, which is per se illegal); AAA Liquors, Inc. v. Joseph E. Seagram & Sons, 705 F.2d 1203, 1207-08 (10th Cir.1982) (applying rule of reason test to small retailers' Sec. 1 claim that liquor distributor offered discriminatory discounts to certain large retailers); Black Gold, Ltd. v. Rockwool Industries, Inc., 729 F.2d 676, 683-84 (10th Cir.1984) (applying 'unreasonableness' test to price discrimination claim under Sec. 1); see also Interface Group, Inc. v. Mass. Port Authority, 816 F.2d 9, 10 (1st Cir.1987) ("anticompetitive," in the context of the Sherman Act, "refers not to actions that merely injure individual competitors, but rather to actions that harm the competitive process").

We are willing to assume for the sake of argument that Monahan's can show that Whaler made boats available to its competitors on better terms and at lower prices. Nonetheless, we conclude that Whaler's actions (which we shall call "price discrimination") are not, on balance, anticompetitive for Sherman Act purposes, for the following reasons:

First, Whaler's low prices were not predatory; Monahan's makes no allegation that the "special deals" Whaler offered to Falmouth and Port amounted to pricing below Whaler's costs. See Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 231 (1st Cir.1983) (defining "predatory" pricing as pricing below seller's costs, and discussing various cost tests; such pricing is predatory because it is a non-sustainable price that can can drive competitors from the market and free the seller to raise prices well above competitive levels). The Sherman Act's very purpose is to help consumers, in part by bringing about low, nonpredatory prices. See Interface Group, 816 F.2d at 10 (Sherman Act seeks to protect the competitive process that will "bring consumers the benefits of lower prices, better products, and more efficient production methods"); Barry Wright, 724 F.2d at 231-32 (goal of Sherman Act is "the low price levels that one would find in well-functioning competitive markets;" courts' task is to develop rules that will discourage predatory pricing but allow "desirable price-cutting activity").

Second, we have held, in the context of a Sherman Act Sec. 2 claim, that a "dominant firm" can lawfully charge a low, nonpredatory price, even though "it could use an 'above cost' price cut to drive out competition, and then later raise prices to levels higher than they otherwise would be." Barry Wright, 724 F.2d at 233 (emphasis added). We held this, not because the possible result we have italicized is desirable. It is not. Our holding, rather, rested upon our concern that judicial efforts to prevent firms from charging low, nonpredatory prices, despite an occasional beneficial result, would more often significantly interfere with the achievement of the Sherman Act's basic and important low price objectives. Id. at 233-35. We have discussed this matter at length in Barry Wright and need not repeat that discussion here.

Third, we recognize that the economic context here is different from that in Barry Wright. In Barry Wright the situation was "horizontal," in the sense that a seller offering low prices to customers threatened injury to other sellers competing for those customers' business. Id. at 229-30. Here the context is "vertical;" a supplier offering low prices to some of its dealers threatens injury to a competing dealer. But, we do not see how this distinction can make a significant legal difference, at least not in the context of the present case, where there is no significant evidence that the low prices could, in fact, have led to a radical and anticompetitive restructuring of the dealers' market.

For one thing, in both contexts, a judicial holding that price discrimination is unlawful has the same potential to harm competition. If suppliers cannot charge low, nonpredatory prices without the threat of antitrust actions, they will hesitate to cut their prices. If suppliers must cut prices to all competing dealers or to none, if they cannot decide to favor a single dealer, say, to promote their product or to target a particular area, they may well decide not to cut prices at all, perhaps to the benefit of the dealers, but certainly to the detriment of the Sherman Act's ultimate beneficiary, the consumer. See AAA Liquors, Inc., 705 F.2d at 1207 (Sherman Act does not require a supplier to offer same price to all dealers; if required to do so, it would be "inhibited from either starting or responding to a local price war," and competition would be discouraged); cf. United States v. Container Corp., 393 U.S. 333, 336-38, 89 S.Ct. 510, 512-13, 21 L.Ed.2d 526 (1969) (exchange of information in a concentrated industry tending to stabilize prices, so that sellers cut prices either simultaneously or not at all, was "within the ban of Sec. 1").

For another thing, the primary contrary consideration (that is, the primary reason militating in favor of forbidding the low price) is the same here as in Barry Wright. That consideration is the fear that the dealers who benefit from the supplier's selectively charged low prices will then lower their own prices to...