Murphy Tugboat Co. v. Crowley

• Decision Date: 27 July 1978
• Docket Number: No. C-74-0189-WWS.,C-74-0189-WWS.
• Citation: 454 F. Supp. 847
• Court: U.S. District Court — Northern District of California
• Parties: MURPHY TUGBOAT COMPANY, Plaintiff, v. Thomas B. CROWLEY et al., Defendants. SHIPOWNERS & MERCHANTS TOWBOAT CO., LTD., et al., Counter-Claimants, v. MURPHY TUGBOAT COMPANY et al., Counter-Defendants.

454 F. Supp. 847

MURPHY TUGBOAT COMPANY, Plaintiff, v. Thomas B. CROWLEY et al., Defendants.

SHIPOWNERS & MERCHANTS TOWBOAT CO., LTD., et al., Counter-Claimants, v. MURPHY TUGBOAT COMPANY et al., Counter-Defendants.

No. C-74-0189-WWS.

United States District Court, N. D. California.

July 27, 1978.

COPYRIGHT MATERIAL OMITTED

Ronald Lovitt, Henry I. Bornstein, Lovitt & Hannan, San Francisco, Cal., Robert L. Palmer, Martori, Meyer, Hendricks & Victor, Phoenix, Ariz., Thomas Elke, A Professional Corp., San Francisco, Cal., for plaintiff & counter-defendants.

Richard J. Archer, Kristina M. Hanson, Jordon D. Luttrell, Sullivan, Jones & Archer, San Francisco, Cal., for defendants and counter-claimants.

RULING ON OFFER OF PROOF

WILLIAM W SCHWARZER, District Judge.

This is an action for violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and Section 17043 of the California Business and Professions Code, which prohibits sales below cost. Defendants are several commonly-owned and controlled companies engaged since before 1969 in shipwork, i. e., providing tugs to assist vessels on San Francisco Bay and its tributaries. Plaintiff was organized and entered the shipwork business in competition with defendants near the end of 1971. It ceased operations in 1975. In this action plaintiff charges defendants with attempting to monopolize the shipwork business on San Francisco Bay by means of a variety of practices including the bundling of tug and pilot services, refusing to work jobs in conjunction with plaintiff's tugs, supplying tugs by one defendant to another below cost, and stabilizing the prices charged for shipwork. It is the pricing aspect of this case with which this ruling is primarily concerned.

I.

The issue before the Court arises upon plaintiff's offer of proof of damages. Plaintiff seeks to recover damages consisting of revenue which it claims to have lost as the result of defendants' failure to raise their shipwork rates responsive to increases in their labor costs.¹ Plaintiff's theory, in substance, is that defendants, as a part of their attempt to monopolize, refrained from increasing their prices to cover their full costs as contract labor rates increased. As a result, plaintiff, compelled to charge competitive rates, was precluded from increasing its rates to higher levels and consequently lost the revenue it would have realized had higher prices been in effect.

The following facts may be taken to be undisputed for purposes of this ruling. At all relevant times, defendants performed the major part of all shipwork on San Francisco Bay and its tributaries. From 1969 until March 1970, however, their operations were idled by a labor dispute. In March 1970, they resumed operations under a new labor agreement which provided for substantial increases in labor costs over the next several years. Notwithstanding this cost increase, defendants resumed operations at prices for shipwork approximately the same as those they had charged when the strike began in 1969. Plaintiff makes no claim that these prices were unlawful when they were in effect in 1969.² About October 1971, plaintiff entered the San Francisco shipwork business for the first time, using a single tug. It set its prices at approximately the level of defendants' prices for comparable services. In January 1972, about three months later, defendants raised their shipwork prices, although not sufficiently, according to plaintiff, to fully absorb the increased costs and all fixed costs. Plaintiff, whose operation had grown by then, in turn raised its prices in April 1972 to approximately the level of defendants. Defendants did not raise their prices again for two years, until May 1974, when they followed an increase in plaintiff's prices. They raised their prices again a year later in April 1975, to be followed by plaintiff. In September 1975, plaintiff ceased operating.

The question before the Court is whether under Section 4 of the Clayton Act, 15 U.S.C. § 15, plaintiff may recover damages measured by reference to revenues which it contends it would have realized had defendants, by setting their prices at a higher level, made it possible for plaintiff to charge higher prices. That question is different from the question whether defendants, by engaging in a course of conduct which included, among other things, maintaining prices below average full costs, violated Sections 1 or 2 of the Sherman Act or the California Unfair Practices Act. Although the liability issue as it relates to the damage issue will hereafter be discussed, what we are concerned with here is the proper measure of damages. For that purpose, liability will be assumed.

In examining plaintiff's damage study, a threshold issue is whether plaintiff's proof is too speculative. Even assuming defendants had deliberately refrained from raising their prices at an earlier time and to a higher level in violation of law, one may have to engage in some speculation to compute (1) the higher level at which defendants' prices would otherwise have been set, (2) the level at which plaintiff (with no prior experience in the market) would have set its prices, (3) the total amount of business and competition in the market at the higher price level, and (4) the amount of revenue plaintiff would have realized.³ For purposes of this ruling, however, we put aside those problems and assume that plaintiff has proved the fact of damage and has overcome any objections based on speculativeness. See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123-125, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969); Kestenbaum v. Falstaff Brewing Corp., 575 F.2d 564 (5th Cir. 1978); Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71, 87 (9th Cir. 1969), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970).

II.

Not every injury causally connected with conduct violating the antitrust laws is compensable. In Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), the Supreme Court held that in order for plaintiffs to recover damages, they must prove antitrust injury, i. e., injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendant's acts unlawful. In that case, plaintiffs charged that defendant's acquisitions of competing bowling centers violated Section 7 of the Clayton Act, 15 U.S.C. § 18. These centers were acquired by defendant, a large manufacturer of bowling equipment, when they defaulted on their debts to defendant. Plaintiffs' damage claim was based on the theory that but for defendant's acquisitions, the competing centers would have gone out of business, resulting in plaintiffs receiving a greater share of business. Plaintiffs claimed as damages the additional revenue they would have earned on the additional business.

The Supreme Court held that plaintiffs' damage claim was not cognizable and directed entry of judgment notwithstanding the verdict for defendant on the damage claim. The Court stated that to recover damages, plaintiffs must prove more than that Section 7 was violated and that as a result they were in a worse position than they would otherwise have been. To allow recovery of any loss causally linked to the presence of the violator in the market "divorces antitrust recovery from the purposes of the antitrust laws . . .." 429 U.S. at 487, 97 S.Ct. at 696.

The Court went on to explain:

"If the acquisitions here were unlawful, it is because they brought a `deep pocket' parent into a market of `pygmies.' Yet respondents' injury — the loss of income that would have accrued had the acquired centers gone bankrupt — bears no relationship to the size of either the acquiring company or its competitors. Respondents would have suffered the identical `loss' — but no compensable injury — had the acquired centers instead obtained refinancing or been purchased by `shallow pocket' parents, . . .

* * * * * *

"At base, respondents complain that by acquiring the failing centers petitioner preserved competition, thereby depriving respondents of the benefits of increased concentration. The damages respondents obtained are designed to provide them with the profits they would have realized had competition been reduced. The antitrust laws, however, were enacted for `the protection of competition, not competitors,' Brown Shoe Co. v. United States, 370 U.S. 294 at 320, 82 S.Ct. 1502, 8 L.Ed.2d 510. It is inimical to the purposes of these laws to award damages for the type of injury claimed here.

* * * * * *

"And it is quite clear that if respondents were injured, it was not `by reason of anything forbidden in the antitrust laws': while respondents' loss occurred `by reason of' the unlawful acquisitions, it did not occur `by reason of' that which made the acquisitions unlawful.

* * * * * *

"Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be `the type of loss that the claimed violations . . . would be likely to cause.' Zenith Radio Corp. v. Hazeltine Research, 395 U.S. at 125, 89 S.Ct. 1562." 429 U.S. at 487-489, 97 S.Ct. at 696-697.

Under Brunswick, this Court must determine whether the damages plaintiff seeks would compensate it for injury "of the type the antitrust laws are intended to prevent," or whether they are merely "profits it . . . would have realized had competition been reduced."

Plaintiff tries to distinguish Brunswick on the ground that it arose under Section 7 of the Clayton Act, which may be violated although no compensable injury is incurred. By way of contrast, plaintiff argues, there can be no violation of Sections 1 or 2 of the Sherman Act without actual injury. The...