Neugebauer v. AS Abell Co., Civ. No. Y-75-776.

• Court: United States District Courts. 4th Circuit. United States District Court (Maryland)
• Citation: 474 F. Supp. 1053
• Docket Number: Civ. No. Y-75-776.
• Parties: Robert F. NEUGEBAUER v. The A. S. ABELL COMPANY, William Schmick, Jr., President, J. Stephen Becker, Vice-President and Business Manager, B. Herbert Reynolds, Circulation Director and Arthur A. Knapp, Supervisor and Manager of Home Delivery, Robert H. Cavanaugh, Director of Marketing, James Kotan, Representative, John Brockmeyer, District Advisor.
• Decision Date: 25 June 1979

474 F. Supp. 1053

Robert F. NEUGEBAUER
v.
The A. S. ABELL COMPANY, William Schmick, Jr., President, J. Stephen Becker, Vice-President and Business Manager, B. Herbert Reynolds, Circulation Director and Arthur A. Knapp, Supervisor and Manager of Home Delivery, Robert H. Cavanaugh, Director of Marketing, James Kotan, Representative, John Brockmeyer, District Advisor.

Civ. No. Y-75-776.

United States District Court, D. Maryland.

June 25, 1979.

474 F. Supp. 1054

COPYRIGHT MATERIAL OMITTED

474 F. Supp. 1055

COPYRIGHT MATERIAL OMITTED

474 F. Supp. 1056

Arnold Fleischmann, John A. Austin, and Charles E. Rosolio, Towson, Md., for plaintiff

Edmund P. Dandridge, Jr., and J. Frederick Motz, and Richard L. Wasserman, Baltimore, Md., for defendants.

474 F. Supp. 1057

JOSEPH H. YOUNG, District Judge.

The plaintiff, Robert F. Neugebauer, has been an authorized carrier for the delivery of newspapers published by the defendant, the A. S. Abell Company, ("Abell"), under the direction of the named defendants. Abell publishes three newspapers, the Morning Sun, Evening Sun, and Sunday Sun ("Sunpapers") which have over ninety percent of their circulation in the Baltimore Standard Metropolitan Statistical Area ("SMSA") consisting of Baltimore City and Anne Arundel, Baltimore, Carroll, Harford and Howard counties. This more "urban" area of the Sunpapers' market is known as the Primary Market Area ("PMA"). Since November 8, 1956, plaintiff has been an authorized carrier, having purchased his delivery business, known as "Route 155" with defendants' approval and consent. In purchasing the route, plaintiff obtained the right to buy Sunpapers from the defendants and, in turn, sell them to customers located in a designated territory known as the area of "primary responsibility."

By an amended complaint in six counts,¹ plaintiff charged defendants with various antitrust violations in their dealings with him. The principal allegation is that defendants have acted to "squeeze" plaintiff out of the home delivery business by increasing the wholesale price charged for their newspapers. Since defendants also sell their newspapers directly in the retail market themselves through vending machines on the street and through their own direct delivery service, plaintiff claims that defendants' raising of the wholesale price has reduced his profits so as to drive him out of the home delivery business.

The case was tried before a jury for four days, and after some eight hours of deliberations, the jury was unable to agree upon a verdict. Prior to sending the case to the jury, the Court had denied defendants' motions for directed verdicts. Defendants have now renewed these motions by filing a Motion for Verdict under Rule 50(b) of the Federal Rules of Civil Procedure. After reviewing the evidence in this case, including the trial transcript, this Court will grant defendants' motion for a directed verdict and enter judgment accordingly.

I. THE FACTS

Since purchasing the delivery route, plaintiff has been continually involved in the servicing of his contract area, an operation which he claims is a full-time, seven-day-a-week business and which involves the assistance of his wife and some part-time employees in collecting the subscription price, sending out bills, and maintaining seven-day answering services. Plaintiff's difficulties began around May 8, 1968 when defendant Abell raised its wholesale rate for the newspapers sold to him. Five days later, plaintiff raised the retail price to his contract area's customers. By raising his prices, plaintiff was then charging his customers a rate in excess of Abell's suggested home delivery price, presumably to maintain his previous profit margin. This pattern continued for each increase of Abell's wholesale price thereafter.

Plaintiff alleges that in October, 1968, Abell began to retaliate for his failure to abide by the suggested prices and initiated a direct delivery solicitation of customers in Neugebauer's contract area to persuade plaintiff's customers to terminate their delivery service with him and enter into a cheaper direct subscription agreement with Abell. This solicitation period for direct delivery service continued until 1972. Plaintiff claims that Abell's solicitors informed his customers that the same delivery service was directly available from the Sunpapers at a lower subscription price.

Since Abell operates its direct delivery service at a loss, plaintiff suggests the only motivation for commencing the solicitation and direct delivery system was to retaliate

474 F. Supp. 1058

for plaintiff's unilateral price decisions and to coerce him into abiding by Abell's suggested rates. Thus, plaintiff faced the problem of being caught in a "price squeeze" since Abell set both the retail price charged to consumers as well as the wholesale price charged to carriers such as Neugebauer. If Neugebauer had to pay more for his newspapers at wholesale and could not pass on the price increase because of Abell's upper limit on the retail prices, then obviously he had to absorb the difference through decreased profits. Plaintiff alleges that the harm caused by Abell's price squeeze continues even now and serves to allow Abell to coerce plaintiff and other authorized carriers to adhere to Abell's suggested retail prices and to permit Abell to attempt to monopolize the newspaper retail market. Plaintiff submits that since Abell had no appropriate or substantial business reason for establishing the direct home delivery system, its activities were motivated by the misuse of its monopoly power in the PMA. He also asserts that defendants were in part motivated to take these actions against him because of his position in the Carriers Council, a group of independent newspaper carriers within the Sunpapers' Route Owners' Association, and as Chairman of the Maryland Independent Newspaper Distributors Association

Defendants have responded arguing that they have never attempted to subject plaintiff to a price squeeze, and that they lack the requisite monopoly power to effectuate the practices of which plaintiff complains. Plaintiff's theory amounts to an allegation that by virtue of its ability to control retail and wholesale prices, Abell is creating a price squeeze which has the effect of eliminating the wholesale market entirely.

Abell admits that plaintiff is an authorized carrier under contract to deliver Sunpapers to homes in a designated area of the Linthicum section of Anne Arundel County, an area within the PMA. When plaintiff entered into his present contract with Abell in 1972, Abell was using its own employees to deliver Sunpapers to some home subscribers in plaintiff's area. Abell has apparently continued the delivery service but does not solicit for it and has undertaken direct delivery service to new subscribers only at their specific request.

While Abell acknowledges its decision to raise its wholesale prices in May, 1968, it claims that the subsequent solicitation program has been mischaracterized by plaintiff. Toward the end of July, 1968, Abell, at its own expense, sent solicitors into plaintiff's area to make a door-to-door solicitation for subscriptions; however, Abell conducted this campaign at plaintiff's then-prevailing rates and turned over any new subscriptions to him. Transcript at 320-21. Three months later, faced with a serious decline in subscriptions, Abell decided to try to expand its circulation on a limited basis by soliciting in areas adjacent to those served by the independent authorized carriers. Abell offered these subscriptions at its then-prevailing suggested home delivery prices in areas where it already had responsibility for home deliveries. People hired as solicitors received explicit instructions to be followed "without any deviation" and were told by Arthur Rode, the person in charge of solicitations in Baltimore City, that they were not to be competing with the independent carriers:

I want to stress that you are not to make any attempt to take present subscribers away from the carrier. However, in the event the customer voluntarily expresses her dissatisfaction over her present service or price, we can then offer our services and prices direct to her from The Sunpapers.

Instructions for Solicitors from Arthur Rode (emphasis in original). See also Rode Affidavit of October 25, 1977. The record further indicates that when one of Abell's solicitors ignored these instructions, he was promptly dismissed from service.

II. PLAINTIFF'S THEORY OF THE CASE

Given Abell's direct delivery solicitation program, plaintiff concludes that Abell has acted so as to ensure itself a monopoly in the relevant newspaper wholesale market. Since Abell is the sole distributor of Sunpapers

474 F. Supp. 1059

in the Baltimore Metropolitan Area, it constitutes plaintiff's sole source of supply. Plaintiff's theory about monopolization in the newspaper wholesale market is premised upon his claim that each of the separate Sunpapers editions (Morning, Evening, and Sunday) constitutes a unique product for which there is no substitute in the Baltimore market. In other words, Abell controls a one-brand market which has no effective substitute or competition. According to plaintiff, Baltimore's News American, an afternoon newspaper, appeals to a substantially different customer and is not a substitute for the Sunpapers

Plaintiff also advances the novel theory of the Sunpapers competing directly with itself by selling at one price to the wholesale buyer (Neugebauer) and at another, higher, price to the retail buyer (the consumer).² Increasing the wholesale price effectively reduces an independent carrier's profit by reducing the overall spread between wholesale and retail prices. By making plaintiff's activities uneconomical, Abell can then effectively terminate his wholesale activities and have the retail market all to itself.

As the case went to trial, two main issues were to be presented...