Osborn v. Sinclair Refining Company, 7899.

• Decision Date: 11 July 1960
• Docket Number: No. 7899.,7899.
• Parties: S. Kriete OSBORN, Appellant, v. SINCLAIR REFINING COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

286 F.2d 832 (1960)

S. Kriete OSBORN, Appellant, v. SINCLAIR REFINING COMPANY, Appellee.

No. 7899.

United States Court of Appeals Fourth Circuit.

Argued November 17, 1959.

Decided July 11, 1960.

Argument on Petition for Rehearing January 26, 1961.

Rehearing Denied February 28, 1961.

John S. McDaniel, Jr., Baltimore, Md. (Cable & McDaniel and Calhoun Bond, Baltimore, Md., on brief), for appellant.

David R. Owen, Baltimore, Md. (William A. Fisher, Jr., and Semmes, Bowen & Semmes, Baltimore, Md., on brief), for appellee.

Before SOBELOFF, Chief Judge, and SOPER and HAYNSWORTH, Circuit Judges.

SOBELOFF, Chief Judge.

Once again, as in McElhenney Co. v. Western Auto Supply Co., 4 Cir., 1959, 269 F.2d 332, this court is faced with a problem arising from a manufacturer's refusal to continue selling to a dealer because of the latter's failure to accede to the seller's wishes with regard to products carried. This time the question arises in the context of the petroleum industry, and the particular issue is whether there existed between the Sinclair Refining Company and its customers an illegal tying arrangement prohibited by section 1 of the Sherman Act, 15 U.S.C.A. § 1. Northern Pac. R. Co. v. United States, 1958, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545. In its opinion, the District Court set out in detail the facts of the case, and, as those findings are not contested on this appeal, we are concerned only with the legal conclusion to be drawn from them.

Sherwood Bros., Inc., formerly an independent distributor of petroleum products in Maryland, became, in 1935, a wholly owned subsidiary of Sinclair, selling Sinclair products in Maryland and in some areas of adjacent states. In 1955, it was merged with Sinclair. Either name will hereafter be used to refer to the defendant. The plaintiff, Osborn, operated a filling station in Maryland carrying Sinclair petroleum products from 1936 to 1948, as an independent dealer under a lease and sales agreement with Sinclair-Sherwood. In the latter year, his lease was terminated and a new lease was entered into which continued until May 31, 1956, when it was cancelled by Sinclair. One of the reasons for the second cancellation and the present litigation was that the plaintiff failed to purchase sufficient quantities of Goodyear Tires, Batteries and Accessories (TBA).

Soon after Sherwood became a subsidiary of Sinclair in 1935, it entered into oral agreements with the Goodyear Tire and Rubber Company under which Sherwood received a commission from Goodyear in connection with the sale of Goodyear products to Sherwood dealers. The Sherwood-Goodyear agreement was reduced to writing in 1944. According to its terms, Sherwood agreed to "actively assist" Goodyear in "selling and in promoting the sale" of Goodyear TBA to Sherwood's dealers, and in return, Goodyear was to pay Sherwood a 10% commission on tires and batteries sold to Sherwood's dealers and commissions of 5% to 10% on car and home merchandise. Also in 1944, Sinclair and Goodyear entered into similar written agreements. There were further details in the contracts, set out in the District Court's opinion, concerning the methods by which orders were taken, adjustments for defective merchandise, billing, collecting, etc.

Because of its financial interest in having its lessee-dealers sell Goodyear TBA rather than competing brands, Sinclair-Sherwood engaged in a course of conduct designed to bring about this result. The facts in this case utterly fail to reveal any other business motive for the defendant's policy that its dealers should handle Goodyear products instead of others. Admittedly, it was proper for Sinclair-Sherwood to desire its lessees to carry a complete, high quality line of TBA. It is conceded, however, that there were other competing brands, and there is no suggestion that Goodyear was superior to other brands of TBA or that there was any benefit to the dealers in handling Goodyear rather than one of the other lines. The plaintiff, in addition to being a lessee of a Sinclair filling station, also operated a Firestone store in a nearby town where he sold that company's TBA. At his filling station, he carried both Goodyear and Firestone TBA, telling Sinclair-Sherwood that he would handle both and let the public choose between them. Firestone, however, remained his major line, and this was responsible, partly at least, for his troubles.

The District Court, after considering all of the evidence presented, concluded that the plaintiff had failed to prove a violation of the anti-trust laws, and gave judgment for the defendant, Sinclair-Sherwood. In this appeal, the plaintiff asserts that there exists a forbidden attempt to monopolize, that the contracts between Sinclair and Goodyear constituted an illegal restraint of trade,¹ and interspersed throughout these arguments are assertions that Sinclair's coercion of its dealers fell within the ban of such tie-in cases as Northern Pac. R. Co. v. United States, 1958, 356 U.S. 1, 78 S.Ct. 514, and International Salt Co. v. United States, 1947, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20.

Although it was shown that the sale of gasoline by Sinclair-Sherwood in Maryland constituted slightly more than 10% of the total sale of gasoline sold in that state during the years immediately prior to the cancellation of the plaintiff's dealership, and that there were in this period 320 Sinclair service stations out of a total of about 2300 service stations in Maryland, the District Judge pointed out that, with regard to TBA, the plaintiff had failed to prove any intent to monopolize or to demonstrate that the economic effects of the agreements between Sinclair-Sherwood and Goodyear were such that those agreements themselves involved an unreasonable restraint of trade. As to the plaintiff's remaining contention, the court concluded that there was in this case no unreasonable per se restraint of trade, such as existed in Standard Oil Co. of California v. United States, 1949, 337 U.S. 293, 69 S.Ct. 1051, 93 L.Ed. 1371 (primarily involving exclusive dealing), and in International Salt Co. v. United States, 1947, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 and Northern Pac. R. Co. v. United States, 1958, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (concerned with tie-ins). The court found, however, that if such a tying arrangement had existed, "the volume of TBA purchases by the Sinclair dealers in the Sherwood division would constitute a not insubstantial amount of commerce," 171 F.Supp. 45 so as to make the per se classification of unreasonableness applicable. Because of the view we take of this case, it will be necessary to deal in detail with this last issue only.

Under the findings of the District Court, not disputed on this appeal, it is clear that an illegal tie-in arrangement existed between Sinclair-Sherwood and its dealers. Many of the findings demonstrate the pressure exerted against the Sinclair dealers to carry Goodyear TBA rather than competing brands. The District Judge observed that Sinclair-Sherwood "was not pleased when its dealers carried a large stock of other TBA products," and that, when Sinclair-Sherwood signed prospective lessees

"the normal procedure was to sign the lease and dealer sales agreement and to secure the initial TBA order simultaneously. Sherwood impressed on its sales personnel the desirability of dealers carrying 100% Goodyear TBA products. They, in turn, used their best efforts to persuade the dealers to purchase Goodyear TBA in preference to other lines."

Of course, a seller may attempt to persuade a buyer to purchase his products rather than those of his competitors, and such salesmanship efforts do not run afoul of the anti-trust laws, unless the sale of one product (the tying product) is made under an agreement, arrangement or condition under which the buyer must also purchase another (the tied) product. The findings compel the legal conclusion that such an agreement, arrangement or condition existed, and that if a dealer desired to continue selling Sinclair gasoline under the lease and sales agreements, he had no choice but to buy, as well, substantial quantities of Goodyear TBA.

At sales meetings held every spring, the dealers were warned by the president of Sherwood that he was dissatisfied with their Goodyear TBA sales. With regard to one meeting in 1949, the District Judge said: "I find that the dealers understood and Sherwood intended them to understand that unless they purchased more Goodyear TBA some of the leases would be terminated." In 1950, Sinclair-Sherwood set as a goal $1,000,000 of TBA sales and "calculated that $35 of TBA sales per 1,000 gallons of gasoline sales was a reasonable quota."

The court also found that: "Sherwood kept records of the purchases of Goodyear TBA by its dealers and considered this item along with others in determining whether to renew or terminate a dealer's lease at the end of each year." The above findings demonstrate that Sinclair-Sherwood's efforts to induce their dealers to carry a substantial quantity of Goodyear TBA went beyond mere persuasion or salesmanship to effectuate Sinclair-Sherwood's policy and constituted an actual requirement and condition for the continued sale of gasoline under their leases.

Although, standing alone, the above general findings do not, perhaps, disclose a tie-in accomplished by express agreement with the dealers, such an express contract is not necessary. In McElhenney v. Western Auto Supply Co., 4 Cir., 1959, 269 F.2d 332, 338, this court pointed out:

"Probably nothing is more firmly settled in our anti-trust jurisprudence than that an illegal contract may be inferred from all of the circumstances. Admittedly, the written agreement between the parties contains no provision requiring the franchisees to deal only in goods supplied by Western Auto. This, of course, merely means that the contract is not unlawful on its face. The writing could be supplemented by an extrinsic

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