Northwest Power Products, Inc. v. Omark Industries, Inc.

• Court: U.S. Court of Appeals — Fifth Circuit
• Writing for the Court: Before THORNBERRY, RONEY and HILL; RONEY
• Citation: Northwest Power Products, Inc. v. Omark Industries, Inc., 576 F.2d 83 (5th Cir. 1978)
• Decision Date: 10 July 1978
• Docket Number: No. 77-1976,77-1976
• Parties: 1978-2 Trade Cases 62,142 NORTHWEST POWER PRODUCTS, INC., Plaintiff-Appellant, v. OMARK INDUSTRIES, INC., Bob Wooten, and Bosco Fastening Service Center, Inc., Defendants-Appellees.

Page 83

576 F.2d 83

1978-2 Trade Cases 62,142

NORTHWEST POWER PRODUCTS, INC., Plaintiff-Appellant, v. OMARK INDUSTRIES, INC., Bob Wooten, and Bosco Fastening Service Center, Inc., Defendants-Appellees.

No. 77-1976.

United States Court of Appeals Fifth Circuit.

July 10, 1978.

Jack N. Price, Austin, Tex., Edward S. Koppman, Vernon O. Teofan, Dallas, Tex., for plaintiff-appellant.

Stephen L. Elliott, Dallas, Tex., for Bosco Fastening Service Center, Inc.

Marvin S. Sloman, Phillip N. Smith, Jr., Dallas, Tex., for Bob Wooten.

Jerry L. Buchmeyer, Timothy R. McCormick, Dallas, Tex., for Omark Industries.

Appeal from the United States District Court for the Northern District of Texas.

Before THORNBERRY, RONEY and HILL, Circuit Judges.

RONEY, Circuit Judge:

Omark Industries, Inc. terminated Northwest Power Products, Inc. as a distributor of Omark powder actuated tools (PAT) and supplies. Northwest brought this treble damage action under the Sherman Act, 15 U.S.C.A. § 1, against Omark; the new distributor, Bosco Fastening Service Center, Inc.; and Northwest's former sales manager, Bob Wooten, who led a contingent of Northwest employees who defected to Bosco. Northwest alleges the defendants conspired both to strip it of its distributorship and to deprive it of its customers by tortious and unfair means. The district court granted summary judgment for the defendants.

The plaintiff rests its case on a slender line of decisions beginning with Albert Pick-Barth Co. v. Mitchell Woodbury Corp., 57 F.2d 96 (1st Cir.), cert. denied, 286 U.S. 552, 52 S.Ct. 503, 76 L.Ed. 1288 (1932), which held somewhat similar conduct to be a per se violation of the antitrust laws. Because we reject the Pick-Barth teaching and agree with defendants that the holding of Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245 (5th Cir. 1975), largely controls this case, we affirm the judgment of the district court.

I. Facts

On appeal from a grant of summary judgment, the facts are to be viewed in the light most favorable to the nonmoving party. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962); Gauck v. Meleski, 346 F.2d 433, 436 (5th Cir. 1965).

The market relevant here is the distribution and servicing of powder actuated tools and supplies for the construction industry in the Dallas-Fort Worth area. The tools fire nail-type fasteners for holding objects to masonry. In that market, Northwest was number two, with an 18-20 percent share, and ranked ahead of eight smaller distributors. Another Omark distributor, McLeroy Fasteners, accounted for two percent. Bosco, a sizeable retailer of construction supplies, sold some powder actuated tool products, but did not act as a distributor. Its sales at retail amounted to less than one-tenth of one percent of the market. Omark, ranking number two in the nation in the manufacture of PATs with a 25 percent market share, had engaged in some local distribution, and, at the time of the termination, still sold to national construction firms operating in Dallas. None of the depositions or affidavits offered in response to the motion for summary judgment, however, quantify those sales.

Omark grew dissatisfied with Northwest, thought its financial footing was unsound, and refused to supply it on other than a C.O.D. basis. Perceiving the problem to be Northwest's president, Raymond McElroy, Omark secretly began negotiations with sales manager Wooten in an attempt to channel its business through an organization Wooten would head. Three Omark representatives then confronted McElroy, and told him that if he did not turn the management of Northwest over to Wooten then Wooten would leave and Omark would terminate Northwest. McElroy refused to comply. He fired Wooten. At Omark's suggestion, Bosco then hired Wooten to open a new PAT distributorship. Omark refused to supply Northwest further, and entered into a distributorship arrangement with Bosco. Bosco hired away Northwest's two other salesmen and a Northwest secretary, who took with her a valuable customer list.

Northwest, relying on Omark inventory and new PAT supplies furnished by Ramset and Diamond, continued in business. To eliminate Northwest from the market, agents of Omark and Bosco made false and disparaging remarks to Northwest customers. These remarks included statements that Northwest did not have the funds to buy Omark products, that Northwest would shortly be bankrupt, and later that Northwest was out of business, could not supply PAT products, and was now one and the same as Bosco.

At the time of summary judgment, Bosco had gained 11.5 percent of the local market, while Northwest's share had plummeted to two percent.

II. Pick-Barth

A supplier may switch dealers and conspire with a new dealer to take the place of an established one. Without more, the antitrust laws do not stand in their way. Burdett Sound, Inc., 515 F.2d at 1248-1249.

Plaintiff argues that Northwest distributed brands of PAT other than Omark, that the defendants conspired to use unfair means to eliminate Northwest as a competitor, and this action brings the defendants' conduct within the prohibition of the Sherman Act. The types of unfair competition assertedly employed by the defendants include (1) employee disloyalty, (2) misappropriation of a "trade secret" customer list, and (3) trade disparagement.

The first court to hold that a conspiracy to eliminate a competitor by unfair means violates the Sherman Act was the First Circuit in Albert Pick-Barth Co. v. Mitchell Woodbury Corp., 57 F.2d 96 (1st Cir.), cert. denied, 286 U.S. 552, 52 S.Ct. 503, 76 L.Ed. 1288 (1932). The defendant, Pick-Barth, was a dominant factor in the national market for kitchen equipment and utensils. Pick-Barth's trade in the New England states, however, was limited. To break into that market, Pick-Barth hired away the plaintiff's employees and wrongfully obtained its customer list. The First Circuit, reversing a jury verdict that no unreasonable restraint of trade resulted, held that the intent to eliminate a competitor by unlawful or unfair competition violated the Act. A later case before the same court characterized the offense as per se. Atlantic Heel Co. v. Allied Heel Co., 284 F.2d 879 (1st Cir. 1960) (two judges concurring in result only). In its most recent consideration, the First Circuit limited Pick-Barth and Allied Heel to what it perceived to be their facts, but did not overrule them. George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 508 F.2d 547 (1st Cir. 1974).

One other circuit court has recognized a Pick-Barth cause of action under the Sherman Act, 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). That decision did not use per se language. One district court, however, has expressly applied a per se test, holding no anticompetitive effect need be shown. Albert Sauter Co. v. Richard S. Sauter Co., 368 F.Supp. 501, 512-514 (E.D.Pa.1973) (verdict for plaintiff). Other courts have allowed trial of issues framed along the lines of the Pick-Barth theory of liability. See Snyder v. Howard Johnson's Motor Lodges, Inc., 412 F.Supp. 724, 729 (S.D.Ill.1976) (denied summary judgment); Tower Tire & Auto Center, Inc. v. Atlantic Richfield Co., 392 F.Supp. 1098 (S.D.Tex.1975) (denied summary judgment); Mr. Hanger, Inc. v. Rizzuto, 410 F.Supp. 1158 (S.D.N.Y.1975) (denied motion to dismiss for lack of jurisdiction); Vogue Instrument Corp. v. Lem Instruments Corp., 40 F.R.D. 497 (S.D.N.Y.1966) (denied summary judgment).

Our own decisions have never expressly considered Pick-Barth. See Southland Reship, Inc. v. Flegel, 534 F.2d 639, 643 (5th Cir. 1973). In Cherokee Laboratories, Inc. v. Rotary Drilling Services, Inc., 383 F.2d 97 (5th Cir. 1967), cert. denied, 390 U.S. 904, 88 S.Ct. 816, 19 L.Ed.2d 870 (1968), we concluded that a case for the jury existed when a supplier enticed plaintiff distributor's employees into forming a new distribution organization for the supplier who then raised his prices to the plaintiff. In Burdett Sound, Inc., however, without mentioning Cherokee, we rejected the theory that an allegation of unfair trade practices in the distributor substitution context could resist a motion for summary judgment, reasoning that "attempts to drive another competitor out of business" did not apply to substitutions. 515 F.2d at 1248. See also Craig v. Sun Oil Co., 515 F.2d 221 (10th Cir. 1975), cert. denied, 429 U.S. 829, 97 S.Ct. 88, 50 L.Ed.2d 92 (1976); Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d 283 (6th Cir.), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 166 (1963). By examination of the original Cherokee Laboratories, Inc. and Burdett Sound, Inc. briefs, we have ascertained that in both cases the plaintiff relied on cases from the Pick-Barth line, but neither published opinion cites them.

This case is different from Burdett Sound, Inc. in some respects. Here the acts of unfair competition were not only designed to switch customers from one distributor to another, but they were also calculated to protect Omark from the new Ramset and Diamond brands carried by Northwest. Burdett Sound, Inc. only addressed conduct designed to lessen intrabrand competition. Here interbrand competition is also at stake, and interbrand competition is the "primary concern of antitrust law." Continental T.V., Inc. v. GTE Sylvania, Inc. 433 U.S. 36, 52 n.19, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977).

Cherokee Laboratories, Inc. was also an interbrand case. While that provides some basis for distinguishing the two cases, in view of this Court's prior failure to address squarely the per se issue raised by the plaintiff, we will confront that question first, and then, rejecting the per se rule, turn to consideration of whether the facts here can establish an antitrust violation under the rule of reason.

III. A Per Se Rule?

The brief...