Phillips v. Crown Central Petroleum Corp.

• Decision Date: 17 February 1977
• Docket Number: 73-304-H,73-504-H and 73-506-H.,Civ. No. 73-303-H
• Citation: 426 F. Supp. 1156
• Parties: John T. PHILLIPS, Jr., Plaintiff, v. CROWN CENTRAL PETROLEUM CORPORATION, Defendant. Corrado Frank TUMMINELLO, Plaintiff, v. CROWN CENTRAL PETROLEUM CORPORATION, Defendant. Charles Phillip FREITAG, Plaintiff, v. CROWN CENTRAL PETROLEUM CORPORATION, Defendant. Carroll Charles MYERS, Plaintiff, v. CROWN CENTRAL PETROLEUM CORPORATION, Defendant.
• Court: U.S. District Court — District of Maryland

426 F. Supp. 1156

John T. PHILLIPS, Jr., Plaintiff, v. CROWN CENTRAL PETROLEUM CORPORATION, Defendant.

Corrado Frank TUMMINELLO, Plaintiff, v. CROWN CENTRAL PETROLEUM CORPORATION, Defendant.

Charles Phillip FREITAG, Plaintiff, v. CROWN CENTRAL PETROLEUM CORPORATION, Defendant.

Carroll Charles MYERS, Plaintiff, v. CROWN CENTRAL PETROLEUM CORPORATION, Defendant.

Civ. Nos. 73-303-H, 73-304-H, 73-504-H and 73-506-H.

United States District Court, D. Maryland.

February 17, 1977.

COPYRIGHT MATERIAL OMITTED

Robert G. Levy, Peter H. Gunst, Allan P. Hillman and Frank, Bernstein, Conaway & Goldman, Baltimore, Md., for plaintiffs.

James H. Kelley, Arthur Wineburg and Bergson, Borkland, Margolis & Adler, Washington, D.C., Morton A. Sacks and Cable, McDaniel, Bowie & Bond, Baltimore, Md., for defendant.

ALEXANDER HARVEY, II, District Judge:

Four independent gasoline service station dealers have brought these consolidated cases against their supplier-landlord, Crown Central Petroleum Corporation, seeking treble damages, attorneys' fees, injunctive relief and costs under the antitrust laws. Following a four-week non-jury trial, this Court filed a written Opinion, Phillips v. Crown Central Petroleum Corp., 395 F.Supp. 735 (D.Md.1975) (Phillips II),¹ finding in favor of the plaintiffs as to most of the liability issues presented. In accordance with the findings and conclusions set forth in that Opinion, an Order was entered on July 1, 1975, providing that Crown has violated Section 1 of the Sherman Act, 15 U.S.C. § 1, in the following respects:

"1. Defendant Crown Central Petroleum Corporation has violated Section 1 of the Sherman Act by combining with competitors horizontally in the fixing of the retail prices of gasoline in the Baltimore metropolitan area.

"2. Defendant Crown Central Petroleum Corporation has violated Section 1 of the Sherman Act by entering into illegal vertical agreements with plaintiffs fixing the retail prices of gasoline in the Baltimore metropolitan area.

"3. Defendant Crown Central Petroleum Corporation has violated Section 1 of the Sherman Act by entering into illegal vertical agreements with plaintiffs fixing the retail prices of motor oil in the Baltimore metropolitan area.

"4. Defendant Crown Central Petroleum Corporation has violated Section 1 of the Sherman Act by entering into illegal tying agreements with plaintiffs relating to the sale of Crown motor oils in the Baltimore metropolitan area."

The Order further provided that each plaintiff was entitled to treble damages, attorneys' fees and costs, all to be determined after further proceedings. With the agreement of the parties, the Court had ordered a bifurcated trial, with all issues of liability being tried first and all issues of remedy reserved for later proceedings.

Following further proceedings in October 1975, this Court made certain rulings as to the scope of the permanent injunction to be entered, and an Order giving effect to such rulings was entered on December 15, 1975.² Thus, the questions which remain to be decided relate to the amount of damages, attorneys' fees and costs to which the successful plaintiffs are entitled.

Following further discovery by the parties, the issue of damages recoverable under Section 4 of the Clayton Act, 15 U.S.C. § 15, came on for trial before this Court on June 21, 1976. Thereafter, plaintiffs filed an application for the allowance of attorneys' fees and a proposed bill of costs. Following the evidentiary hearing on damages, the parties filed exhaustive post-trial briefs on all questions presently before the Court, and final argument was heard in open court on October 19, 1976.

I

Damages

In Phillips II, supra, this Court found that Crown has violated Section 1 of the Sherman Act (1) by combining with competitors horizontally in the fixing of the retail prices of gasoline in the Baltimore metropolitan area; (2) by entering into vertical agreements fixing the retail prices of gasoline in the same market area; and (3) by entering into vertical and tying agreements relating to the sale of Crown motor oils in the same market area. 395 F.Supp. at 757-59, 760-64, 764-66.³ The Court further determined that these illegal marketing practices caused injury to each plaintiff's "business or property" within the meaning of Section 4 of the Clayton Act. On the basis of the evidence produced, the Court concluded that "plaintiffs have met their burden of establishing a direct causal connection between Crown's antitrust violations . . . and injuries suffered by them." Id. at 768 (footnote omitted).

The parties have stipulated to the amount of damages which this Court should award each plaintiff because of illegal restraints relating to the sale of Crown motor oils.⁴ However, the parties vigorously dispute both the existence of and the amount of any damages recoverable by plaintiffs as a result of both the horizontal and the vertical violations pertaining to the sale of gasoline. Plaintiffs claim that they are entitled to single damages in the amounts of $38,579 for Phillips, $49,156 for Tumminello, $30,335 for Freitag and $54,561 for Myers. Plaintiffs further ask that these amounts be trebled under Section 4 of the Clayton Act. Crown objects to awards in these amounts, contending that they are no more than speculative estimates which are without foundation on the record here. In addition, Crown asserts that under the so-called "pass-on" defense, the plaintiffs actually suffered no injury and are therefore not entitled to any award at all.

Plaintiffs' claims for damages rest essentially upon the expert testimony of Dr. Carl F. Christ, a Professor of Economics at the Johns Hopkins University. Using the price and gallonage statistics provided by Crown,⁵ Dr. Christ has calculated separately the horizontal and vertical damages of each plaintiff. These damages have been measured from the time the particular plaintiff became a Crown dealer until April 3, 1973, when the first complaint in these consolidated cases was filed in this Court. Dr. Christ made no adjustment in the period for those plaintiffs who filed suit after April 3, 1973, but simply assumed that Crown then relinquished its control over retail gasoline prices. Crown has not questioned the correctness of the period used by Dr. Christ in his calculations, and the Court will accept this period for the purpose of determining the amount to be awarded to each plaintiff both as vertical and as horizontal damages.

(a) The Vertical Damages Claimed

As this Court found in Phillips II, supra at 768, plaintiffs "suffered injury when they were prohibited from raising their retail prices by Crown's illegal vertical agreements." Dr. Christ affixes a monetary value to this injury through a comparison of the actual gross margin, that is the retail price less the wholesale price,⁶ for each plaintiff after these suits were filed and the theoretical gross margin for each plaintiff had Crown continued to maintain its vertical restraints on the retail price of gasoline for the period in question. The actual gross margin has been determined from the known wholesale prices paid by and the retail prices charged by plaintiffs for regular and premium gasoline during the six-month period from April 3 to September 30, 1973, inclusive. The evidence shows that each plaintiff's gross margin increased markedly and abruptly in April of 1973 after Crown permitted the plaintiffs to set their own retail prices. For the same six-month period, Dr. Christ then computes the daily theoretical gross margin for each plaintiff, based on Crown's own formula for setting retail prices.⁷ By subtracting the theoretical from the actual gross margin for each day, Dr. Christ obtains the increase in gross margin attributable to the cessation of Crown's vertical price-fixing. Every increase is then weighted by the number of days it existed and averaged over the entire six-month period. In this manner, Dr. Christ arrives at an average gross margin increase for each plaintiff from April through September of 1973.⁸ Since plaintiffs set their own retail gasoline prices during that period, Dr. Christ concludes that this average increase is an approximate measure of the amount by which margins prior to April 3, 1973 were held down through vertical price-fixing by Crown.

Using this average gross margin increase, Dr. Christ then calculates the total monetary damages sustained by each plaintiff as a result of Crown's illegal vertical agreements. This is done by multiplying each plaintiff's own increase by the amount of gasoline he would have purchased and sold in the absence of price-fixing. This latter figure is determined from the number of gallons purchased by that plaintiff since becoming a Crown dealer but before April 3, 1973. Because Crown's retail price-fixing efforts undoubtedly impeded plaintiffs' actual sales in this period.⁹ Dr. Christ indicates that these gallonage figures are probably lower than what plaintiffs would otherwise have sold in a free market. He therefore asserts that, if anything, he has understated the amounts in concluding that the plaintiffs have suffered damages for vertical price-fixing as follows: Phillips, $8,050; Tumminello, $15,274; Freitag, $8,132; and Myers, $9,650.

(b) The Horizontal Damages Claimed

Although this Court has concluded that Crown conspired with its competitors horizontally to fix the retail prices of gasoline, the resulting injury to the plaintiffs arises because of the wholesale prices charged by Crown. Such is the necessary result of Crown's method of pricing its gasoline. Because Crown first decided on the appropriate retail price to be charged for its gasoline by the dealers and then worked back to the wholesale price to be charged the dealer, Phillips II, supra at 758, any artificially high retail price necessarily increased the wholesale price above the competitive level. Id. at 768. Thus, in Phillips II, supra at 768, this Court concluded...