Roberts v. Elaine Powers Figure Salons, Inc.

• Decision Date: 24 June 1983
• Docket Number: No. 81-4647,81-4647
• Citation: 708 F.2d 1476
• Parties: 1983-1 Trade Cases 65,463 Edward J. ROBERTS, et al., Plaintiffs-Appellants, v. ELAINE POWERS FIGURE SALONS, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1476

708 F.2d 1476

1983-1 Trade Cases 65,463

Edward J. ROBERTS, et al., Plaintiffs-Appellants, v. ELAINE POWERS FIGURE SALONS, INC., et al., Defendants-Appellees.

No. 81-4647.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Oct. 13, 1982.

Decided June 24, 1983.

Judy R. Campos, Hefner, Stark & Marios, Sacramento, Cal., for defendants-appellees.

Charles P. Wolff, Furth, Fahrner, Bluemle & Mason, San Francisco, Cal., for plaintiffs-appellants.

Appeal from the United States District Court for the Eastern District of California.

Before MERRILL, Senior Circuit Judge, BOOCHEVER, Circuit Judge, and SMITH, ^* Senior District Judge.

BOOCHEVER, Circuit Judge:

This is an appeal from entry of summary judgment on a claim of unlawful tying in violation of the Sherman Act. The district court held that there was no unlawful per se tying arrangement between the sale of a franchise (the alleged tying product) and bookkeeping services (the alleged tied product) provided by an independent corporation. We hold that this case is not appropriate for summary judgment because there are genuine issues of material fact. We reverse and remand for trial.

Background

Plaintiffs-appellants are Edward Roberts, a Michigan resident who purchased nine franchises from defendants-appellees, and nine corporations formed by Roberts to operate the franchises ("Roberts"). Defendants-appellees are Elaine Powers Figure Salons, Inc., No. 1 Elaine Powers Figure Salons, Inc., and Unicare, Inc. ("Elaine Powers"). Unicare purchased the Elaine Powers companies in 1970.

In 1973, Roberts filed suit against Elaine Powers alleging violations of the federal antitrust and securities laws and common law fraud. Several counts included in the original cause of action have been withdrawn. All that remains on appeal is Roberts' claim that Elaine Powers violated section 1 of the Sherman Act, 15 U.S.C. Sec. 1, by unlawfully tying the purchase of bookkeeping services to the purchase of Elaine Powers franchises.

Elaine Powers began establishing figure control salons in 1964. In 1966, the company commenced selling franchised salons under the Elaine Powers trademark. By late 1969, Roberts had opened nine franchised salons. The franchise agreements all contained a clause stating:

[T]he bookkeeping for the salon shall be done by a bookkeeping service used and designated by the Franchisor. Such service shall be retained both during the initial period and thereafter so long as Franchisee operates under this franchise.

Under this provision, the franchisee was required to send daily financial and statistical reports to the franchisor and to submit payroll cards and bills. Checks were prepared by the franchisor's head office and mailed back to the franchisee for distribution. The bookkeeping service was to prepare quarterly tax reports, monthly operating statements, annual financial statements, and income tax returns.

Elaine Powers designated Gillanders, Inc., as the franchise bookkeeping service. Ken Gillanders, an independent accountant, started doing bookkeeping work for Elaine Powers from its inception in 1964. In 1966, Mr. Gillanders incorporated his business; he and his wife were the sole shareholders. When Mr. Gillanders first started doing work for Elaine Powers, he had fifteen or more other clients. As the Elaine Powers corporations prospered, he dropped the other clients and worked exclusively for Elaine Powers. Gillanders, Inc., merged with Elaine Powers in 1970.

Roberts had problems with the bookkeeping services and complained to Elaine Powers and Gillanders. He said his creditors were not being paid promptly since Elaine Powers did not always prepare payment checks on time. He also complained about Gillanders' tax accounting services. Roberts visited the Elaine Powers offices in California twice to discuss the problems and requested permission to use his own bookkeeping service. His request was denied.

In March 1970, Roberts notified Elaine Powers he would no longer use Gillanders, Inc., as his bookkeeping service, but he wished to remain an Elaine Powers franchisee. In August 1970, before the Elaine Powers and Gillanders merger, Elaine Powers notified Roberts that his nine franchises were terminated for his failure to make payments to the franchisor, refusal to send bookkeeping records, failure to have checks countersigned by Elaine Powers, failure to submit leases for approval, and purchasing supplies from companies owned by Roberts at higher than market prices in violation of the franchise agreement.

Roberts continued to operate the salons, using the Elaine Powers name on eight salons. By June 1970, all but one had gone out of business. The ninth closed in May 1973.

Elaine Powers moved for summary judgment on Roberts' two remaining counts, which alleged that Elaine Powers unlawfully conditioned the sale of the franchises on the purchase of salon equipment and bookkeeping services, all at excessive prices, and that Elaine Powers illegally terminated the nine franchises because Roberts refused to abide by the unlawful tying arrangement. Arguments on the motion were heard in June 1977. While a decision on the motion was pending, this court handed down its decision in Moore v. Jas. H. Matthews & Co., 550 F.2d 1207 (9th Cir.1977), and the district court ordered further briefing. On December 22, 1980, the district court granted summary judgment for Elaine Powers on both the salon equipment and bookkeeping service tying claims. The court held, inter alia, that Roberts could not establish that Elaine Powers had an economic interest in the bookkeeping service. Judgment was entered on November 24, 1981. Roberts appeals only the bookkeeping issue.

Standard of Review

We conduct de novo review of a motion for summary judgment. State ex rel. Edwards v. Heimann, 633 F.2d 886, 888 n. 1 (9th Cir.1980). We must view the evidence in the light most favorable to Roberts to determine if there is a genuine issue as to any material fact and, if not, whether Elaine Powers is clearly entitled to prevail as a matter of law. Id. at 888. The Supreme Court has cautioned courts to use summary judgment relief sparingly in antitrust cases. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962). There is no blanket exemption of antitrust claims from summary judgment, however, and such relief may be appropriate, especially in those cases where motive and intent are not determinative. See White Motor Co. v. United States, 372 U.S. 253, 259, 83 S.Ct. 696, 699, 9 L.Ed.2d 738 (1963); THI-Hawaii, Inc. v. First Commerce Financial Corp., 627 F.2d 991, 994 (9th Cir.1980).

Discussion

A. Tying Arrangement

Roberts alleges that Elaine Powers maintained an unlawful tie-in in violation of section 1 of the Sherman Act, which prohibits all agreements in restraint of trade or commerce. A tie-in is established when a seller refuses to sell one product (the tying product) unless the buyer also purchases another (the tied product). Such an arrangement is presumptively unlawful if certain elements exist; once those elements are demonstrated, no specific showing of unreasonable anticompetitive effect is required. Moore v. Jas. H. Matthews & Co., 550 F.2d 1207, 1211 (9th Cir.1977) (Moore II ). ¹

In Moore II, we set out the elements of an unlawful tie-in. First, there must be a tie-in between two distinct products or services. Second, the defendant must have sufficient economic power in the tying market to impose significant restrictions in the tied product market. Third, the plaintiff must show that a not insubstantial volume of commerce in the tied product market is affected. Id. at 1212.

Moore II raised two additional questions. The court must ask whether the seller of the tying product has an "economic interest" in the tied product, and whether a "modicum of coercion" was exerted upon the purchaser by the seller of the tying item. Id. at 1216. Our focus in this case is on the requirement that the seller have an economic interest in the tied product, i.e., that Elaine Powers has an economic interest in the Gillanders' bookkeeping service.

Roberts argues that there are genuine issues of material fact as to whether Elaine Powers had an economic interest in the bookkeeping service. He raises four indicia of the alleged economic interest which could tend to show that Elaine Powers received direct economic benefits from Gillanders, Inc.

First, Gillanders, Inc., transferred approximately $10,000 to Elaine Powers in early 1970. Elaine Powers calls this a loan, but the record reveals no written loan agreement, interest rate, or repayment term. There is no record of repayment, but Elaine Powers claims that the loan was either repaid directly or through appropriate credits and transfers at the time of the 1970 merger.

Second, Mrs. Gillanders received payments from Gillanders, Inc., while she worked exclusively for Elaine Powers. As a top management employee of Elaine Powers, she received $18,000-$22,000 per year. Payments from Gillanders, Inc., ranged from $5,000-$9,000 per year. In addition, she received dividends as a shareholder in Gillanders, Inc. in amounts ranging from nothing the first year to $6,000-$8,000 the last year.

Roberts contends that these payments were a form of kickback to Elaine Powers made by Gillanders, Inc. Elaine Powers argues that they were compensation to Mrs. Gillanders for her ownership interest in Gillanders, Inc.

Third, Mr. Gillanders served as secretary-treasurer of Elaine Powers without receiving any compensation. Roberts characterizes this as another economic benefit to Elaine Powers from Gillanders, Inc. Mr. Gillanders stated he performed his duties "merely as a convenience" to facilitate performance of his accounting duties, for which Gillanders, Inc. was compensated directly by the franchisees.

Fourth, Mr. and Mrs. Gillanders owned No. 13 Elaine Powers Figure Salons, Inc., which owned and...