Oreck Corp. v. Whirlpool Corp.

• Citation: 639 F.2d 75
• Decision Date: 05 November 1980
• Docket Number: No. 6,D,6
• Parties: 1980-81 Trade Cases 63,619, 7 Fed. R. Evid. Serv. 207 ORECK CORPORATION, Plaintiff-Appellant, v. WHIRLPOOL CORPORATION and Sears Roebuck and Co., Defendants-Appellees. ocket 79-7791.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 75

639 F.2d 75

1980-81 Trade Cases 63,619, 7 Fed. R. Evid. Serv. 207

ORECK CORPORATION, Plaintiff-Appellant, v. WHIRLPOOL CORPORATION and Sears Roebuck and Co., Defendants-Appellees.

No. 6, Docket 79-7791.

United States Court of Appeals, Second Circuit.

Argued Sept. 4, 1980.

Decided Nov. 5, 1980.

Howard Adler, Jr., Washington, D. C. (James W. Olson, Michael D. Ridberg, Ronald W. Kleinman, and Bergson, Borkland, Margolis & Adler, Washington, D. C., and Mervin Rosenman, New York City, on the brief), for plaintiff-appellant Oreck Corp.

Michael R. Turoff, Chicago, Ill. (Stanley M. Lipnick, Patrick F. Geary, and Arnstein, Gluck, Weitzenfeld & Minow, Chicago, Ill., on the brief), for defendant-appellee Whirlpool Corp.

Gerald D. Fischer, New York City (Lefrak, Fischer, Myerson & Mandell, New York City, on the brief), for defendant-appellee Sears, Roebuck and Co.

Before TIMBERS, VAN GRAAFEILAND and NEWMAN, Circuit Judges.

TIMBERS, Circuit Judge:

This action was commenced by appellant, Oreck Corporation, in September 1972. Following a jury trial, judgment was entered in July 1976 against appellees, Whirlpool Corporation and Sears, Roebuck and Co., and in favor of appellant on two counts of a seven count complaint charging violations of Section 1 of the Sherman Act, 15 U.S.C. § 1 (1976). On appeal, a divided panel of this Court reversed and remanded the case for a new trial. 563 F.2d 54 (2 Cir. 1977). On rehearing en banc, we adhered to the decision of the panel majority and remanded the case for a new trial. 579 F.2d 126 (2 Cir.), cert. denied, 439 U.S. 946 (1978).

At the close of appellant's case at the trial on remand, the district court, Richard Owen, District Judge, granted appellees' motion for a directed verdict. From the judgment entered thereon, appellant has appealed. We affirm on the ground that there was insufficient evidence to establish a conspiracy in restraint of trade.

I. FACTS

We assume familiarity with the comprehensive statements of the facts underlying this dispute as set forth in the late Judge Anderson's panel and en banc opinions referred to above.

Since 1957 Whirlpool has manufactured vacuum cleaners for Sears. The latter has sold them under Sears' "Kenmore" label. Whirlpool also has tried, unsuccessfully, to sell its vacuum cleaners under its own name. From 1963 until 1971 Oreck was the exclusive distributor of vacuum cleaners under the "Whirlpool" trade name.

On December 31, 1971 Whirlpool allowed Oreck's exclusive distributorship to expire according to its terms and refused to extend it. Oreck commenced the instant action in September 1972 claiming that Whirlpool's refusal to renew the sales agreement resulted from an illegal contract, combination or conspiracy between Whirlpool and Sears unreasonably to restrain trade by excluding Oreck from the vacuum cleaner market in the United States and Canada. ¹ More specifically, Oreck alleged that its distributorship was terminated by Whirlpool at the insistence of Sears, a much larger purchaser of Whirlpool products.

Appellees contended by way of defense that Whirlpool refused to renew Oreck's contract because of Oreck's failure to follow Whirlpool's marketing strategy for its vacuum cleaners. According to testimony adduced at the first trial, as Judge Anderson pointed out in our earlier en banc opinion, Whirlpool intended to market its name brand vacuum cleaners in retail department stores, but Oreck's campaign focused increasingly on janitorial supply houses and mail order sales. 579 F.2d at 128.

Appellees further contended that Sears never considered Oreck a competitive threat. Indeed, despite Oreck's claim that it sold vacuum cleaners at "one-half the retail price," there was no evidence that it ever undercut Sears on the price of vacuum cleaners.

II. THE LEGAL STANDARD

A plaintiff in a civil action, in order to sustain its claim under Section 1 of the Sherman Act, must establish two elements: first, that the defendants entered into a "contract, combination ... or conspiracy"; and, second, that it was "in restraint of trade or commerce among the several states." 15 U.S.C. § 1 (1976); House of Materials, Inc. v. Simplicity Pattern Co., 298 F.2d 867, 870 (2 Cir. 1962); DuPont Glore Forgan Inc. v. Am. Tel. & Tel. Co., 437 F.Supp. 1104, 1111 (S.D.N.Y.1977), aff'd, 578 F.2d 1367 (2 Cir. 1978). We hold that Oreck did not sustain at trial its burden of proving a conspiracy between Whirlpool and Sears. We therefore affirm the judgment of the district court entered on its directed verdict for appellees. ²

It is elemental that Whirlpool's termination of its distributorship contract with Oreck cannot be held to have violated the Sherman Act unless it stemmed from "a contract, combination or conspiracy" between Whirlpool and Sears. FLM Collision Parts Inc. v. Ford Motor Co., 543 F.2d 1019, 1029 (2 Cir. 1976), cert. denied, 429 U.S. 1097 (1977). It is not necessary that such a combination be established by direct proof of oral or written agreements; it may be proven by inferences drawn from circumstantial evidence, including the acts and conduct of the alleged conspirators. Norfolk Monument Co., Inc. v. Woodlawn Memorial Gardens, Inc., 394 U.S. 700, 704 (1969). A mere showing of close relations or frequent meetings between the alleged conspirators, however, will not sustain a plaintiff's burden absent evidence which would permit the inference that those close ties led to an illegal agreement. Miller v. New York Produce Exchange, 550 F.2d 762, 767 (2 Cir. 1976), cert. denied, 434 U.S. 823 (1977); Hanson v. Shell Oil Co., 541 F.2d 1352, 1359 (9 Cir. 1976), cert. denied, 429 U.S. 1073 (1977); Venzie Corp. v. United States Mineral Products Co., Inc., 521 F.2d 1309, 1312-13 (3 Cir. 1975).

In the instant case Oreck cannot be said to have sustained its burden by merely establishing that Sears was an important customer with close ties to its supplier, Whirlpool, or even by showing that Sears had substantial economic muscle to enable it to force Whirlpool to terminate its relationship with Oreck. Upon the facts of this case, it was necessary for Oreck to establish that Sears used that relationship or its power to prod Whirlpool into ending the Oreck distributorship.

III. ORECK'S EVIDENCE IN THE DISTRICT COURT

Much of the circumstantial evidence adduced by Oreck focused on the substantial economic ties between the alleged conspirators. Since 1958 Sears has been Whirlpool's largest customer for vacuum cleaners and other appliances. Between 1962 and 1972 Sears owned between 3% and 41/2% of Whirlpool's outstanding common stock. Sears' subsidiary, Allstate Insurance Co., owned between 8/10 of 1% and 21/2% of the outstanding Whirlpool stock. Sears' officers have served on Whirlpool's board of directors. Sears held title to the tools which Whirlpool used to manufacture its vacuum cleaners. It did so pursuant to an agreement under which the cost of the tools, although initially paid for by Whirlpool, was amortized over a number of units as produced; and in this way Sears ultimately reimbursed Whirlpool for the cost of the tools. This gave Sears control over the use of the tools and the power to determine for whom Whirlpool could manufacture vacuum cleaners.

There was little evidence, either direct or circumstantial, that Sears actually exercised any of this economic muscle in the manner claimed by Oreck. While Sears' ownership of the tools used to manufacture Oreck's products gave Sears a direct means of cutting off Oreck's supply of vacuum cleaners, the evidence showed that Sears authorized Whirlpool's use of the tools to manufacture vacuum cleaners for Oreck and never rescinded that authorization, although Sears did receive royalties on Oreck's sales.

It is argued that the existence of a conspiracy might be inferred from actions taken by Whirlpool which were inconsistent with its economic self-interest. Oreck, however, has failed to establish that Whirlpool took any action which did not comport with its legitimate commercial objectives. Oreck has attempted to make much of Whirlpool's refusal to sell Oreck its inventory of vacuum cleaners after the termination of its distributorship. The record shows, however, that after December 1971, when the distributorship was terminated, Oreck owed Whirlpool over $220,000. Whirlpool was forced to sue to collect this indebtedness. Under these circumstances, Whirlpool's refusal to sell after the termination of the distributorship can hardly be said to be contrary to Whirlpool's economic self-interest.

Oreck did show that Sears executives had forwarded to Whirlpool copies of direct mail advertising used by Oreck to sell Whirlpool vacuum cleaners with indications that Sears considered the advertising improper. In 1971, the final year of the distributorship, Oreck mailed over 20 million pieces of advertising to consumers, among whom were Sears employees. This advertising contained certain allegedly false and misleading statements, including a statement that Whirlpool vacuum cleaners were being offered at half-price. These statements were the subject of complaints from other sources, including the Better Business Bureau.

That Sears brought these improper selling methods to Whirlpool's attention hardly rises to the level of evidence of a conspiracy unlawfully to exclude Oreck from the vacuum cleaner market. Sears argues that as a Whirlpool stockholder it had a legitimate business interest in advising Whirlpool of substandard advertising campaigns which Sears thought reflected poorly on Whirlpool's image with consumers. Moreover, even if Sears' actions were to be viewed as a complaint by one Whirlpool customer about the selling practices of another, such a complaint would not indicate illegal concerted action, since it is merely normal marketplace behavior for such complaints to be made. Carbon Steel Products Corp. v. Alan Wood Steel Co., 289 F.Supp. 584, 588 (S.D.N.Y.1968).

This evidence at most showed...