Rutledge v. Electric Hose and Rubber Company, 69-825.

• Decision Date: 22 April 1971
• Docket Number: No. 69-825.,69-825.
• Court: U.S. District Court — Central District of California
• Parties: M. D. RUTLEDGE, doing business as Rubber Hose Supply Company and Industrial Hose and Rubber Company, and Mechanicals, Inc., a corporation, Plaintiffs, v. ELECTRIC HOSE AND RUBBER COMPANY, a corporation, et al., Defendants.

327 F. Supp. 1267

M. D. RUTLEDGE, doing business as Rubber Hose Supply Company and Industrial Hose and Rubber Company, and Mechanicals, Inc., a corporation, Plaintiffs, v. ELECTRIC HOSE AND RUBBER COMPANY, a corporation, et al., Defendants.

No. 69-825.

United States District Court, C. D. California.

April 22, 1971.

COPYRIGHT MATERIAL OMITTED

Monty G. Mason II, Los Angeles, Cal., for plaintiff; M. D. Rutledge, in pro. per.

O'Melveny & Myers, Patrick Lynch, Gibson, Dunn & Crutcher, Newlin, Tackabury & Johnston, Mitchell, Silberberg & Knupp, Latham & Watkins, Sheppard, Mullin, Richter & Hampton, McCutchen, Black, Verleger & Shea, Los Angeles, Cal., Cantey, Hanger, Gooch, Cravins, Fort Worth, Tex., Burdett & Gleason, Panorama City, Cal., Arthur, Day, Kalish, Taylor & Wood, New York City, Domke, Marcoux, Allen & Beaman, Jackson, Mich., Thompson, Hine & Flory Jones, Day, Cockley & Reavis, Cleveland, Ohio, Winston, Straw, Smith & Patterson, Chicago, Ill., for defendants.

ORDER GRANTING MOTION TO DISMISS UNDER F.R.C.P. 41(b).

DAVID W. WILLIAMS, District Judge.

Certain of the defendants in this case are manufacturers of hydraulic hose.¹ Their product is used in a variety of equipment including automotive hydraulic systems, aircraft systems, earthmoving and agricultural equipment. Hydraulic hose is the term applied to reinforced flexible hose whose primary function is to carry fluids under relatively high pressure. It is generally made to comply with specifications or standards fixed by the Society of Automotive Engineers (SAE). Hydraulic hose is actually a series of hoses which have been reinforced with steel, wire or cotton to resist internal pressure. An inner tube is wrapped with the reinforcing material, such as wire braid or fabric braid. This hose is not useful without a fitting or coupling attached to it and the mating of the hose to the fitting produces what the industry calls a hose assembly. Such fittings are carefully designed for the particular purpose for which the assembly is to be used. Since high pressures are involved, the hose and fitting must be designed and attached so as to provide maximum safety in the use of the assembly.

The remaining defendants herein are couplers.² They engineer and manufacture fittings which they attach to hose bought from hose manufacturers. This hose assembly is then sold by them to original equipment manufacturers (OEM), such as manufacturers of automobiles or forklifts, or to the replacement market (sometimes called the after-market). Couplers require the hose they buy to be manufactured to their specialized requirements and the product is subjected to rigid testing. It is the couplers who develop new uses for hydraulic control assemblies and they market their product with large sales and service staffs.

M. D. Rutledge owns the companies designated as plaintiffs in this case. He describes himself as a small manufacturer of couplings which he crimps or attaches to hose ends to form assemblies. The larger part of his business is manufacturing and selling automobile power-brake assemblies. Like the coupler defendants, Rutledge must make his hose purchases from the various hose manufacturers. He complains that he is the victim of a conspiratorial and unlawful arrangement between the various hose manufacturers and the defendant couplers which permits the latter to buy their hose supply from the former at prices as much as 25% below the level at which the hose manufacturers will sell the same to Rutledge. He argues that there is no legitimate basis for refusing him the coupler price and that the refusal prevents him from expanding his business and seeking a part of the OEM market.

There is no denial that the defendant hose manufacturers extend a so-called coupler's price to those coupling assemblers whom the hose people qualify as such, or that the discount amounts to about 25%. The hose manufacturers justify this discount as compensation correctly due a qualified hose assembler since the assembler performs a valuable service to the hose manufacturer, viz., he makes the hose usable in the market place by designing and attaching the fitting thereto, testing the product, selling it to a national market, and servicing it by field agents.

For many years plaintiff has tried to convince the hose manufacturers that his small business should meet the ordinary definition of a coupling assembler. Plaintiff contends that their refusal to qualify him as a coupler is arbitrary, that the defendant couplers have pressured the hose manufacturers to refuse plaintiff the coupler price so as to stifle competition, and that his exclusion from the elite group of those who receive the lower price is the product of meetings between the two classes of defendants which have resulted in unlawful combinations and illegal agreements. Appropriate denials have been entered by the various defendants. The hose manufacturers stoutly maintain that each selects its business customers by the exercise of independent judgment based upon criteria each manufacturer fixes for its own guidance and that there is no deliberate concert of action between them.

In 1968 the Government completed a rather wide investigation of the interdealings between the hose manufacturers and couplers named in this present suit and concluded that their marketing practices were violative of Section 1 of the Sherman Act (15 U.S.C. § 1). Separate criminal indictments were returned in the Eastern district of Michigan—one naming a group of hose manufacturers (who entered nolo pleas and were probated) and the other naming a group of coupling manufacturers who went to trial.³ After nine weeks of hearing the Government's evidence in support of its allegations of conspiracy, Judge Machrowicz concluded that the Government had failed to make a showing strong enough for the case to go to the jury and granted the defendants' motions for acquittal.⁴

Rutledge's strong feelings against the defendants and the system he believes to exist prompted him to become a principal witness for the Government in the Detroit trial. His disappointment at the outcome of that trial led him to file this private treble damage action alleging violations of Section 1 of the Sherman Act in the first count of the complaint and violations of the Robinson-Patman Act in the second and third counts.

In this bifurcated trial, plaintiffs were permitted to reserve their presentation of evidence of damages until liability was established. At the conclusion of plaintiff's evidence as to liability, the defendants filed and argued motions under Rule 41(b) of the Federal Rules of Civil Procedure for a dismissal on the ground that upon the facts and the law the plaintiff had shown no right to relief. For reasons stated hereinafter this motion must be granted.

Sherman Act § 1 Claim

Mindful that the Government had summoned many witnesses from widely separated places of residence to the Detroit trial at great expense, Rutledge believed that he could avoid bringing those witnesses to California to his trial and could avoid deposing them prior to the trial in their home states. He assumed that the out-of-state witnesses were unavailable within the meaning of California Evidence Code § 1291 and that he could use the Detroit trial transcript to present the testimony of those witnesses. Plaintiffs did not take the depositions of those witnesses who were beyond the reach of subpoena (although the defendants offered to make them available in the witnesses' home states.) Plaintiffs also utterly failed to make any proper showing of a foundation for unavailability of those witnesses. Furthermore, the Detroit trial involved only Sherman Act accusations and not Robinson-Patman Act charges and involved only some of the present defendants, while others of them were not parties thereto or represented at the trial in any way. For these reasons, this Court denied plaintiff the right to offer the former testimony.

Proper preparation of a private antitrust suit entails indefatigable pretrial discovery by the plaintiff since most of the damning evidence he must produce must come from the files and mouths of those he sues. Despite the passage of 22 months between the date of the filing of this suit and the commencement of trial, plaintiffs engaged in little or no meaningful discovery. They waited until the eve of trial to make calls upon the various defendants to produce evidence from their files which was hoped would aid their case. Most of the documents fitting the late calls were in files in warehouses across the country. The defendants made last-minute efforts to respond to the calls by having categories of documents airshipped from their distant locations. Nevertheless, plaintiffs were deprived of the advantage and information their requests for documents might have provided them because of the tardiness of their call. During the seven weeks spent trying this case, this Court has felt that, despite the Government's failure to sustain its heavier burden of proof in the Detroit criminal trial, somewhere in the defendants' corporate files in Akron or Cleveland or Jackson, Michigan there might be sufficient discoverable evidence to enable these plaintiffs to prevail if only they had sought it out. But a conspiracy must be proved by independent evidence and mere suspicion of wrongdoing is not enough.

As revealed by the evidence, it was the practice of the hose manufacturers to devise trade levels or discount classifications and give the lowest price to those companies which met that particular hose manufacturer's idea of a coupler. Most other customers, including plaintiffs, got what was known as the distributor price. Each hose company had its own policy for determining fitness for the coupler rating. While its sales representatives in the field might gather information concerning a new applicant for the lowest price, they had to pass the application to the company's executive level for a...