Outboard Marine Corp. v. Pezetel

Decision Date27 September 1978
Docket NumberCiv. A. No. 77-51.
Citation461 F. Supp. 384
PartiesOUTBOARD MARINE CORPORATION, a Delaware Corporation, Plaintiff, v. PEZETEL, a Foreign Trade Organization of the People's Republic of Poland, Melex USA, Inc., a Delaware Corporation, Fern Clo Golf Car Co., Inc., a Pennsylvania Corporation, Ross Products, Inc., a Delaware Corporation, Eddietron, Inc., a North Carolina Corporation, and Boylan Leasing, Inc., a Michigan Corporation, Defendants.
CourtU.S. District Court — District of Delaware

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William O. LaMotte, III, Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for plaintiff; Charles Owen Verrill, and Donald A. Lofty, Patton, Boggs & Blow, Washington, D. C., of counsel.

James T. McKinstry, Richards, Layton & Finger, Wilmington, Del., for defendants Pezetel and Melex, USA, Inc.; Henry W. Sawyer, III, Stewart Dalzell, and Mark M. Wilcox, Drinker, Biddle & Reath, Louis B. Schwartz, Philadelphia, Pa., of counsel.

William J. Wier, Bader, Dorsey & Krehstool, Wilmington, Del., for Boylan Leasing, Inc.; Thomas G. Buford, Howard & Howard, Kalamazoo, Mich., of counsel.

James T. McKinstry, Richards, Layton & Finger, Wilmington, Del., for Ross Products, Inc.; Gerald J. Brown, Cahill, Gordon & Reindel, Washington, D. C., of counsel.

Paul H. Spiller, Kimmel & Spiller, Wilmington, Del., for Fern Clo Golf Car, Inc; John C. Butera, Butera, Hess, Beausang & Moyer, King of Prussie, P.A. of counsel.

James T. McKinstry, Richards, Layton & Finger, Wilmington, Del., for Eddietron, Inc.; W. Warren Sparrow, Winston-Salem, N. C., of counsel.

MURRAY M. SCHWARTZ, District Judge.

The increase in trade between countries whose economies are controlled and the United States with its legal and economic heritage of free enterprise inevitably creates disputes not envisioned at the time statutes designed to promote the continued prosperity of the American economy were passed. When a producer in a controlled economy decides to manufacture a product solely for export to the United States, the potential for complaint from an aggrieved American industry increases.

This case demonstrates the difficulties which occur when an American manufacturer which cannot meet the prices offered by a foreign competitor operating in a controlled economy seeks refuge in the federal courts. The importation of electric golf carts from Poland and the subsequent demise of Cushman, a division of plaintiff Outboard Marine Corporation ("OMC") that manufactured gas and electric golf carts, gives rise to plaintiff's complaint, the subject of defendants' motions to dismiss.

Alleging antitrust claims under sections one and two of the Sherman Act, 15 U.S.C. §§ 1, 2, violations of the Wilson Tariff Act, 15 U.S.C. § 8, and the Antidumping Act of 1916, 15 U.S.C. § 72, OMC has named as defendants, Pezetel Foreign Trade Enterprise of the Aviation Industry ("Pezetel"), "an agency or instrumentality" created by and responsible to the Peoples Republic of Poland, which exports golf carts manufactured in Poland to the United States under the brand name Melex; Melex, USA, Incorporated ("Melex"), a company wholly owned by Pezetel and incorporated in Delaware, which at the present time imports the golf carts and sells these carts in geographical areas of the United States which lack designated Melex dealers; Ross Products, Inc. ("Ross"), a Delaware corporation engaged in the distribution of Melex golf carts throughout certain southern and southwestern states of the United States; Fern Clo Golf Car Inc. ("Fern Clo"), a Pennsylvania corporation which distributes Melex golf carts in Delaware, New Jersey, New York, New England and parts of Pennsylvania; Eddietron, Inc. ("Eddietron"), a North Carolina corporation which distributes Melex golf carts through North and South Carolina, Virginia, parts of Tennessee, West Virginia and Maryland; and Boylan Leasing Company, Incorporated ("Boylan"), a Michigan corporation designated to distribute Melex golf carts throughout certain midwestern states.

A reading of plaintiff's complaint illuminates the interesting history and marketing practices of the golf-cart industry. Until 1970 domestic manufacturers completely controlled the golf-cart industry without fear of competition from abroad. In contrast, Poland had very little interest in golf carts. Until 1970 golf carts had not been manufactured in Poland and until at least the time of filing of the instant complaint in 1977, and of oral argument in early 1978, no golf course existed nor were golf carts sold in Poland. In 1970, an American company known as Products International entered into an agreement with Pezetel's predecessor, Elektrim Foreign Trade Company for Electrical Equipment, Ltd. ("Elektrim"), to copy and manufacture an electric golf cart according to the specifications used by an American manufacturer. As a result, according to plaintiff, Elektrim provided eight carts "identical with and built to the specifications of the domestic vehicle."

The importation of eight such carts into the United States in 1970 hardly foreshadowed the phenomenal success awaiting the Polish manufacturer that could produce carts virtually identical in design to the American model at significantly reduced prices. In 1971, 959 electric golf carts were imported from Poland; in 1972, the number had increased to 2799. In 1973, defendant Pezetel succeeded Elektrim as the Polish manufacturer, established Melex, a wholly owned company incorporated in Delaware, and entered into exclusive sales and distribution agreements directly with defendant distributors Ross, Fern Clo, Eddietron and Boylan. The sales of Melex golf carts continued to rise at a rapid rate such that 6087 Melex carts were exported in 1973, representing 17% of all electric golf carts sold in the United States in that year. In 1974, 8040 or 19% of all electric golf carts sold in the United States were manufactured by Pezetel. Finally, within the first four months of 1975,1 4156 Melex carts were sold representing a very healthy 35% of the electric golf-cart market.2

Golf carts are typically sold by a manufacturer to a dealer who sells or leases to the ultimate consumer, usually a golf course, by way of a reverse auction. This process is initiated by the prospective purchaser who solicits bids. After the low bidder is identified, the other bidders have an opportunity to rebid until the buyer is satisfied it has secured the best terms, which usually means the lowest price. Here, the lower prices of Melex golf carts inevitably led to bids below those offered by OMC with the result that Pezetel's market share increased while OMC's sales declined. Finally, OMC discontinued production of both electric and gas golf carts at the end of 1975. Seeking damages incurred as a result of plaintiff's loss of sales, plaintiff filed suit in 1977 alleging four counts of misconduct by defendants.

Count 1, alleging violation of Sherman 1, 15 U.S.C. § 1, asserts that Pezetel, Melex and the defendant distributors have by their sales agreements "combined and conspired among themselves . . . and have engaged in a course of action unreasonably to restrain interstate and foreign trade and commerce of the United States in golf carts." Count 2 sets out plaintiff's claim under Sherman 2, 15 U.S.C. § 2, claiming defendants and coconspirators have monopolized and are monopolizing or have attempted to monopolize . . . the manufacture, sale and distribution of golf carts in the United States. Count 3 alleges violation of Section 73 of the Wilson Tariff Act, 15 U.S.C. § 8, in that the alleged combination and conspiracy resulting in the importation of golf carts from Poland were intended by defendants and did "operate in restraint of lawful trade or free competition in lawful trade." Count 4 asserts that defendants which imported or have aided the importation and sale of electric golf carts in the United States at "prices substantially less than the actual market values of wholesale prices of such or similar products" in the United States at the time of exportation did so "with the intent of destroying or of restraining or monopolizing trade in golf cars" in violation of the Antidumping Act of 1916, 15 U.S.C. § 72.

The factual support for these allegations hinges upon two assertions: (1) the importation of golf carts manufactured by Pezetel at "agreed upon prices that are below `actual market value' or alternatively that are less than fair value" and (2) the allocation of sales territories.

The allegedly offensive pricing scheme involves proffering prices to Melex dealers that are "significantly below the prices charged for comparable golf carts by domestic manufacturers to their dealers" such that the contracts negotiated with the Melex distributors set a per unit price "less than the cost of production of most domestic golf carts." Thus, in connection with its claim that defendant sold below "actual market value" the complaint alleges not that Pezetel sold below its cost to its distributors, but rather that it undersold most of its American competitors' wholesale prices.

Sales at "less than fair value" is a term of art used by the United States Treasury Department and the United States International Trade Commission ("ITC"). In support of its claim that defendant sold at less than fair value, plaintiff relies on proceedings initiated before the ITC. The ITC is charged with investigating and correcting foreign trade practices that adversely affect domestic commerce. Apparently it found that the domestic golf-cart industry was substantially injured by defendants' activities and assessed increased duties against the defendant distributors, which also had served as importers. Consequently, in 1975 by agreement with defendant distributors, defendant Melex allegedly assumed the role of importer and as such paid the duty.

With respect to the alleged territorial restrictions, plaintiff avers that...

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