Reserve Supply Corp. v. Owens-Corning Fiberglas Corp.

• Decision Date: 04 August 1992
• Docket Number: No. 91-1154,OWENS-CORNING,91-1154
• Citation: 971 F.2d 37
• Parties: 1992-2 Trade Cases P 69,913 RESERVE SUPPLY CORPORATION, Plaintiff-Appellant, v.FIBERGLAS CORPORATION and CertainTeed Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 37

971 F.2d 37

1992-2 Trade Cases P 69,913

RESERVE SUPPLY CORPORATION, Plaintiff-Appellant, v. OWENS-CORNING FIBERGLAS CORPORATION and CertainTeed

Corporation, Defendants-Appellees.

No. 91-1154.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 27, 1991.

Decided Aug. 4, 1992.

Robert N. Sodikoff, Charles E. Zeitlin, Greenberg, Keele, Lunn & Aronberg, and Richard P. Campbell, and Anthony S. Divincenzo (argued), Campbell & Divincenzo, Chicago, Ill., for plaintiff-appellant.

Jeffrey L. Dorman, Earl E. Pollock, Blake L. Harrop, Robert T. Joseph, Sonnenschein, Nath & Rosenthal, and David F. Graham, Pamela R. Hanebutt and Douglas F. Fuson (argued), Sidley & Austin, Chicago, Ill., for defendants-appellees.

Before WOOD, Jr. ^* , RIPPLE, and MANION, Circuit Judges.

RIPPLE, Circuit Judge.

Reserve Supply Corporation (Reserve) appeals a grant of summary judgment in favor of Owens-Corning Fiberglas Corporation (Owens-Corning) and CertainTeed Corporation (CertainTeed). The district court determined that Owens-Corning and CertainTeed did not conspire to fix prices in the residential fiberglass insulation market in violation of section 1 of the Sherman Act, 15 U.S.C. § 1, and the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121 1/2, para. 261, et seq. It also determined that Owens-Corning and CertainTeed had a good faith belief that the discriminatory prices for insulation that they offered Builders Marts of America (BMA) were warranted by competitive circumstances and that, consequently, their conduct was shielded from liability under the Clayton Act, as amended by the Robinson-Patman Act, by that statute's "meeting competition" defense. 15 U.S.C. § 13(b). For the reasons given below, we affirm the judgment of the district court.

I BACKGROUND

A. Facts

This case involves pricing practices in the fiberglass insulation industry. Reserve is a lumber dealer cooperative based in Illinois, which purchased fiberglass insulation. Owens-Corning and CertainTeed are large insulation manufacturers, which, along with Johns-Manville, held 85 to 90 percent of the market share in the period between 1979 and 1983.

Reserve brings two distinct claims. First, it alleges that Owens-Corning and CertainTeed offered discriminatorily low prices to Reserve's competitor, BMA, in the spring and summer of 1979. Second, Reserve contends that Owens-Corning and CertainTeed conspired to fix prices generally in the fiberglass insulation market. The facts relevant to one claim are not necessarily relevant to the other. Consequently, for the sake of clarity, we shall provide a statement of the facts related to each claim as that claim is discussed. Nonetheless, some background common to both claims ought to be set forth at this point.

Fiberglass insulation is an essentially homogeneous product which is marketed in standard sizes, grades ("R-values"), and formats. There is little or no functional difference between the insulation that Owens-Corning and CertainTeed sold. At the time relevant to this dispute, Owens-Corning and CertainTeed priced insulation according to an identical method: each company made available to its customers a list price for various types of insulation; it then provided standard discounts off this price based on the type of customer who was purchasing. According to the record, it appears that discounts were the practice, not the exception; apparently every customer When they were offered lower prices for insulation from other suppliers, purchasers made it a practice to inform suppliers in the hope of obtaining the same price from them. Consequently, pricing information was widely disseminated throughout the industry. Because of this readily available information, the fungibility of the product, and the relatively small number of producers, the market for insulation was "interdependent." That is, each producer had to take into account the conduct of its competitors when it priced its product, and it could not maintain a higher price without losing its market share. ¹ Demand for insulation was tied substantially to the level of housing starts, and was therefore relatively inelastic. An industrywide drop in the price of insulation would not have translated necessarily into a commensurate increase in industrywide sales.

                received one of these standard discounts.   In addition, both suppliers provided extraordinary discounts to certain customers in order to meet the prices of competitors
                

B. District Court Proceedings

In June 1983, Reserve filed a three-count complaint against Owens-Corning and CertainTeed. Count One alleged a conspiracy or agreement to restrain trade in the fiberglass insulation market, in violation of section 1 of the Sherman Act. 15 U.S.C. § 1. Count Two alleged discriminatory pricing on the part of Owens-Corning and CertainTeed by charging discriminatorily lower prices for insulation products to competitors of Reserve, in violation of section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act. 15 U.S.C. § 13(a). Finally, Count Three asserted, as a pendent state claim, that Owens-Corning and CertainTeed's alleged price fixing also violated the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121 1/2, para. 261, et seq.

In 1986, the district court (Duff, J.) granted CertainTeed's motion for summary judgment on the Robinson-Patman claim. Reserve Supply Corp. v. Owens-Corning Fiberglas Corp., 639 F.Supp. 1457 (N.D.Ill.1986). In 1990, the court (Alesia, J.) granted summary judgment to Owens-Corning on the Robinson-Patman claim, and to both defendants on the price-fixing claims. Reserve Supply Corp. v. Owens-Corning Fiberglas Corp., 1992-1 Trade Cas. (CCH) p 69,304, 799 F.Supp. 840 (N.D.Ill.1990). We shall discuss each of these holdings as we address the merits of each claim.

II

THE ROBINSON-PATMAN CLAIM

Count Two of Reserve's complaint alleged that Owens-Corning and CertainTeed engaged in discriminatory pricing of insulation in sales to various competitors of Reserve. On appeal, Reserve challenges only the district court's finding of no illegal discrimination in sales that the defendants made to Builders Marts of America (BMA), a large building supplies dealer in the southeast United States. ²

1. Holding of the district court

As we have noted previously, summary judgment on this claim was granted for CertainTeed by the district court's (Duff, J.) order in 1986. For the purposes of ruling on this motion, the court assumed that Reserve had made out a prima facie case of price discrimination--that is, that CertainTeed had sold insulation at a price lower than that available to Reserve. However, the court ruled that, even if this discrimination had taken place, CertainTeed's conduct was not illegal because it was entitled as a matter of law to the "meeting competition" defense contained in section 2(b) of the Act. 15 U.S.C. § 13(b). With regard to sales to purchasers other than BMA, the court found that CertainTeed had followed company procedures designed to verify the existence of discounts reported by customers. This fact established that the lower prices it offered these customers were made with a good faith belief that they would meet a competitor's Summary judgment in favor of Owens-Corning was granted by the district court's (Alesia, J.) order of 1990. As in the case of CertainTeed, the court assumed that Owens-Corning had offered discriminatory prices to its customers. Also, as in the case of CertainTeed, the court held that Owens-Corning's discount verification procedures entitled it to the meeting competition defense for sales made to purchasers other than BMA. With regard to sales to BMA, the court found that, before Owens-Corning had offered its discount, BMA had informed it of a comparable discount from CertainTeed, that BMA had threatened Owens-Corning with a loss of sales if that discount were not met, and that Owens-Corning had evaluated that discount against market conditions. The district court held that, under United States Gypsum, these facts demonstrated that Owens-Corning was entitled to the section 2(b) defense as a matter of law.

                lower price.  Reserve Supply Corp., 639 F.Supp. at 1465.   The district court then held that, although CertainTeed did not employ fully these procedures when it gave a discriminatory discount to BMA, the circumstances surrounding this sale nonetheless demonstrated that CertainTeed believed in good faith that its discount would meet competition.   Citing the indicia of good faith identified by the Supreme Court in United States v. United States Gypsum Co., 438 U.S. 422, 455, 98 S.Ct. 2864, 2882, 57 L.Ed.2d 854 (1978), the court noted that BMA assured CertainTeed that the discount it sought was available in the market;  that CertainTeed officials evaluated the reasonableness of this discount in light of market conditions;  and that this discount actually met a comparable discount that BMA was then receiving from Owens-Corning.  Reserve Supply Corp., 639 F.Supp. at 1465-67
                

2. Applicable standards

Section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a), makes it illegal to discriminate in price between buyers when an injury to competition is the consequence. United States v. United States Gypsum Co., 438 U.S. 422, 450, 98 S.Ct. 2864, 2880, 57 L.Ed.2d 854 (1978). In this case, all parties concede that both Owens-Corning and CertainTeed engaged in price discrimination when they granted a 16 percent discount to BMA that was not available to Reserve. However, both Owens-Corning and CertainTeed attempt to avoid liability by availing themselves of the affirmative defense contained in section 2(b) of the Act. 15 U.S.C. § 13(b):

That nothing herein contained shall prevent a seller rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low...