Olmstead v. Amoco Oil Co., 82-5358

• Decision Date: 24 February 1984
• Docket Number: No. 82-5358,82-5358
• Parties: 1984-1 Trade Cases 65,869 Gerald D. OLMSTEAD, Jr., individually, and on behalf of all Amoco dealers in the State of Florida, Plaintiff-Appellant, Cross-Appellee, v. AMOCO OIL COMPANY, f/k/a American Oil Company, a Maryland corporation, et al., Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 627

725 F.2d 627

1984-1 Trade Cases 65,869

Gerald D. OLMSTEAD, Jr., individually, and on behalf of all

Amoco dealers in the State of Florida, Plaintiff-Appellant, Cross-Appellee, v. AMOCO OIL COMPANY, f/k/a American Oil Company, a Maryland

corporation, et al., Defendants-Appellees, Cross-Appellants.

No. 82-5358.

United States Court of Appeals, Eleventh Circuit.

Feb. 24, 1984.

Duckworth, Allen, Dyer & Pettis, Herbert L. Allen, Robert Dyer, Orlando, Fla., for plaintiff-appellant, cross-appellee.

Thomas F. Lang, Orlando, Fla., Robert C. Smith, Washington, D.C., for Amoco & Miller.

Jack F. Durie, Jr., Orlando, Fla., for Hoffman.

Paul B. Johnson, Gregory, Cours, Paniello, Johnson, Hayes & Hoft, Tampa, Fla., for Plaza Equip. & Lazzara.

Appeals from the United States District Court for the Middle District of Florida.

Before HILL and KRAVITCH, Circuit Judges, and MORGAN, Senior Circuit Judge.

LEWIS R. MORGAN, Senior Circuit Judge:

Gerald D. Olmstead, the appellant and cross-appellee, and Amoco Oil Company, the appellee and cross-appellant, challenge a decision of the District Court for the Middle District of Florida. The facts giving rise to this case concern Olmstead's previous relationship with Amoco as lessee and operator of one of its service stations in Orlando, Florida. Olmstead began operating the station in 1969 pursuant to a one-year lease agreement which was automatically renewable unless terminated by Amoco at the anniversary date. Under the terms of the lease Olmstead paid Amoco a monthly rent based on the amount of gasoline delivered to the station. He also purchased tires, batteries, and other automobile accessories from Amoco.

Olmstead's gasoline sales began to decline in 1973 and Amoco approached him about the possibility of installing an automatic car wash on the premises in order to attract business. Amoco had begun testing and marketing a car wash program several years earlier and determined that the offer of a free car wash with a gasoline sale was a successful method of increasing business. Under the terms of the car wash program Amoco provided the physical improvements necessary for a service station to house a car wash, but the service station operator purchased the car wash itself. Amoco offered a rebate incentive on the monthly rental to help defray the cost of the equipment. Amoco's market research concluded that a car wash manufactured by Bernardi Brothers, Inc., of Harrisburg, Pennsylvania, was superior in terms of reliability, service and financing availability. Plaza Equipment Company was a distributor of Bernardi car washes in Florida and the dealer recommended by Amoco to its Florida service station operators. Unbeknownst to Amoco's higher level management, Plaza Equipment paid kickbacks to Amoco's Florida district manager for each car wash ordered by an Amoco dealer.

Olmstead decided to purchase a car wash in 1972 and again in 1973, but he cancelled the order both times. In April of 1974 Amoco terminated Olmstead's lease because of declining sales and he operated the station under two 60-day leases. In July, Olmstead and Amoco entered into a new lease agreement for a one-year term, retroactively effective April 20, 1974, with the standard automatic renewal provision on the anniversary date. In September, Olmstead ordered a Bernardi car wash from Plaza Equipment and it was installed in December. The car wash did not have a positive effect on Olmstead's gasoline sales and Amoco decided to terminate the lease on its anniversary date in April of 1976. Amoco offered to pay Olmstead for his equity in the car wash and to assume all future payments, but Olmstead refused to vacate the premises. Amoco then filed an eviction suit in the County Court of Orange County, Florida, to which Olmstead answered with general denials, an affirmative defense, and a counterclaim for damages. The counterclaim was dismissed as untimely, and Amoco was awarded possession of the property. Olmstead did not appeal from the eviction action and Amoco subsequently sold the property to a third party.

Olmstead then filed this action in federal court against Amoco, Plaza Equipment Company, and several individual employees of the two corporations. The complaint contained five counts. Counts One through Four alleged various federal and state antitrust violations against all the defendants, including an illegal tying arrangement between Amoco's leases and the purchase of a car wash, and a conspiracy between Amoco and Plaza Equipment Company to monopolize trade and competition of automatic car washes in Florida. Count Five asserted common law fraud against Amoco and sought compensatory and punitive damages. Olmstead charged that Amoco fraudulently induced him to purchase a car wash by orally promising to refrain from terminating his lease for five years. Count Five also alleged that Amoco fraudulently misrepresented the cost of the car wash. Amoco raised various defenses including res judicata and collateral estoppel arising from the state court eviction proceedings, and the Florida statute of frauds with regard to the alleged oral contract. The district judge allowed Olmstead to proceed on all five counts, but at the end of a lengthy jury trial granted Amoco's motion for a directed verdict on Counts One through Four. The jury returned a verdict in favor of Olmstead on the fraud claim and awarded $18,500 in compensatory damages, $40,000 for lost profits, and $250,000 punitive damages. Amoco then moved for j.n.o.v. or in the alternative a new trial. After holding two hearings, the trial court granted Amoco's motion for j.n.o.v. in February of 1982 as to all damages except the $18,500 compensatory award.

In this appeal Olmstead argues that the trial court erred in granting Amoco's motion for a directed verdict on his claim of an unlawful tying arrangement. Olmstead further claims that the trial court erred in granting Amoco's motion for j.n.o.v. on the jury's award for lost profits and punitive damages in connection with the fraud claim. Amoco contends that the trial court should have dismissed the fraud claim because of collateral estoppel and res judicata, or in the alternative should have granted its motion for j.n.o.v. as to the entire jury verdict. After a careful and thorough review of the various claims and the relevant law, we agree with Amoco that the trial court erred in allowing Olmstead to present the fraudulent inducement claim. We affirm on the remaining issues.

THE TYING CLAIM.

Olmstead attempted to prove at trial that Amoco violated Section 1 of the Sherman Act, 15 U.S.C. Sec. 1, by tying the sale of a car wash to its service station lease. An illegal tie "can be generally defined as an agreement under which a seller agrees to sell one product (the 'tying product') only on the condition that the buyer also purchase a second product (the 'tied product')." Kentucky Fried Chicken v. Diversified Packaging, 549 F.2d 368, 375 (5th Cir.1977). "The standard of illegality is that the seller must have 'sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product....' " United States v. Loew's, Inc., 371 U.S. 38, 83 S.Ct. 97, 9 L.Ed.2d 11 (1962), quoting Northern Pacific Railway Company v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). The Amoco lease was the alleged tying product in this case and the car wash was the tied product. The trial judge cited three independent reasons for his decision to direct a verdict against Olmstead. First, he concluded as a matter of law that Amoco did not have any economic interest in the tied product even though one of its employees financially benefited from each car wash sale. "There is no illegal tying arrangement where a 'tying' company has absolutely no interest in the sales of a third company whose products are favored by the tie-in." Keener v. Sizzler Family Steak Houses, 597 F.2d 453, 456 (5th Cir.1979). Second, he found that Olmstead did not establish the requisite economic strength of Amoco in the relevant market. See Kentucky Fried Chicken v. Diversified Packaging, 549 F.2d at 375. Finally, the trial judge ruled that Olmstead failed to present any evidence proving damages as a result of its alleged illegal tie-in. See Kypta v. McDonald's Corporation, 671 F.2d 1282 (11th Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 814, 74 L.Ed.2d 109 (1982). We need focus only on the last ruling to affirm the directed verdict.

The briefs, arguments, and record in this case demonstrate that Olmstead confused two subtly distinct types of tie-in arrangements. The most common form of tying is where a seller of one product forces its customer to purchase a second product which is necessary or useful for the customer's business. In other words, the customer is able to use the tied product but is unable to shop for the most competitive seller. See, e.g., Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th Cir.1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1172, 31 L.Ed.2d 232 (1972) (the defendant franchisor was charged with unlawfully tying its franchise license with the purchase of its restaurant supplies). In Kypta v. McDonald's Corporation, our court articulated a precise standard for determining damages in this type of tie-in arrangement:

[I]njury resulting from a tie-in must be shown by establishing that payments for both the tied and tying products exceed their combined fair market value.... Unless the fair market value of both the tied and tying products are determined and an overcharge in the complete price found, no injury can be claimed; suit, then, would be foreclosed.

671 F.2d at 1285. The judge below ruled against Olmstead after discussing this standard and noting Olmstead's complete failure to present any evidence of the fair market value of the Amoco lease and the Bernardi car wash.

Olmstead disputes the applicability of Kypta to his claim, and argues that the correct...