Rutman Wine Co. v. E. & J. Gallo Winery, No. 86-1983

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: Before NOONAN and O'SCANNLAIN; STOTLER
• Citation: 829 F.2d 729
• Parties: 1987-2 Trade Cases 67,720 RUTMAN WINE COMPANY, Plaintiff-Appellant, v. E. & J. GALLO WINERY, Defendant-Appellee.
• Docket Number: No. 86-1983
• Decision Date: 30 September 1987

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829 F.2d 729 1987-2 Trade Cases 67,720 RUTMAN WINE COMPANY, Plaintiff-Appellant,
v.
E. & J. GALLO WINERY, Defendant-Appellee. No. 86-1983. United States Court of Appeals,
Ninth Circuit. Argued and Submitted March 12, 1987.
Decided Sept. 30, 1987.

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Bernard S. Goldfarb, Cleveland, Ohio, for plaintiff-appellant.

G. Kip Edwards (argued), Matthew D. Powers, Orrick, Herrington & Sutcliffe, San Francisco, Cal., for defendant-appellee.

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

Before NOONAN and O'SCANNLAIN, Circuit Judges, and STOTLER, ^* District Judge.

STOTLER, District Judge:

Rutman Wine Company ("Rutman") appeals from the district court's dismissal with prejudice of Counts 1-4 of its Second Amended Complaint. These counts charge appellee E. & J. Gallo Winery ("Gallo") and nonparty Wine Distributors, Inc. ("WDI") with nonprice-related violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1, 2 (1986), sections 2(d) and 2(e) of the Robinson-Patman Act, 15 U.S.C. Secs. 13(d), (e) (1986), and Ohio's Valentine Antitrust Act,

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Ohio Revised Code Secs. 1331.01-.14. ¹ Rutman seeks not less than $7 million in damages and injunctive relief requiring, inter alia, that Gallo reinstate Rutman as a distributor.

The Northern District of Ohio transferred the case on defendant's motion to the Eastern District of California in 1984. The district court dismissed the First Amended Complaint because plaintiff's allegations of injury to itself did not establish the required injury to competition. Although plaintiff amended, the court dismissed counts of the Second Amended Complaint due to the same deficiency. The court also concluded that defendant's alleged discrimination against Rutman in providing certain services did not show that plaintiff's ability to compete with favored purchasers of defendant's products was impaired. Plaintiff's requests to conduct discovery and amend anew were denied.

Since essential elements of claims under sections 1 and 2 of the Sherman Act and under section 2(e) of the Robinson-Patman Act are missing from appellant's third effort to state such claims, the district court's dismissal of Counts 1-4 is affirmed.

I.

STANDARD OF REVIEW

This Court reviews de novo a district court's dismissal pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Fidelity Financial Corp. v. Federal Home Loan Bank of San Francisco, 792 F.2d 1432, 1435 (9th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 949, 93 L.Ed.2d 998 (1987). This Court must thus consider whether "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

II.

SUMMARY OF COMPLAINT

Rutman complains that Gallo terminated its distributorship agreement as part of a conspiracy or combination with WDI to restrain trade unreasonably and to effectuate Gallo's actual or attempted monopolization of the wine products market in Cuyahoga County, Ohio. In furtherance of this scheme, Gallo purportedly discriminated against appellant in favor of WDI. Count 1 alleges violations of both sections 1 and 2 of the Sherman Act; Count 3 contains the Robinson-Patman allegations; Counts 2 and 4 are based on the Ohio antitrust statute.

Appellant is an Ohio corporation engaged in the import and distribution of wines and beer in Cuyahoga County, Ohio. It distributes to approximately 1,500 retail outlets in and around Cleveland. The sale of wine products comprises at least 99% of Rutman's overall business. Approximately 95% of Rutman's products are purchased from out-of-state suppliers. It spends approximately $6 million per year for its wine products.

Gallo is a California corporation which manufactures relatively low-priced domestic wines. It possesses 25-33% of the wine sales market in the U.S. Rutman distributed Gallo wine for nearly forty years prior to its termination in August 1984. It was the largest wine vendor in the county and sold products of twenty-nine different wine

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manufacturers, Gallo's competitors among them. Rutman exclusively distributed Inglenook and Taylor California Cellar wines, Gallo's chief competitors in the county's retail wine market. Gallo products, however, constituted 25% of Rutman's sales for which appellant spent approximately $1.5 million per year.

In the early 1970's, Gallo established WDI as another wholesale distributor of wine products in Cuyahoga County. Gallo provided material assistance to WDI which was not provided to any of its competitors. On information and belief, appellant alleges that 1) Gallo obtained a warehouse facility for WDI's use and subleased it to WDI on favorable terms; 2) Gallo "took away" several products so that WDI could have the benefit of selling an established product without competition; 3) Gallo provided WDI with favorable financing options; 4) Gallo provided WDI with point-of-sale advertising and promotional materials not made available to Rutman; 5) Gallo provided advertising material to WDI which it refused to provide to Rutman, and 6) Gallo utilized advertisements of products sold by WDI and would not advocate products sold by Rutman.

The parties' relationship was governed by a 1977 non-exclusive Agreement of Distributorship. Gallo required Rutman to regularly report its sales level of wine products manufactured by Gallo's competitors. Thus, Gallo was able to monitor the level of appellant's sales of products, including those of Gallo's chief competitors in the county.

Gallo terminated Rutman via letter received June 18, 1984, effective sixty days thereafter. The letter allegedly resulted from a number of private or secret communications between Gallo and WDI representatives, and was issued with the purpose and effect of preventing, reducing, and unreasonably limiting competition in the market for the importation and the sale of wine products in Cuyahoga County. Such termination of appellant constituted an attempt to monopolize and/or to form a combination with WDI to monopolize the relevant market, all to the detriment of the public interest. The termination purportedly has injured and will continue to injure Rutman's ability to compete, to retain its customers, and to remain as a viable force in the business of wholesale wine distribution.

Appellant alleges that Gallo knows that the loss of the Gallo line in Cuyahoga County "could either drive Rutman totally out of business or force Rutman to implement severe cutbacks in personnel and resources so as to preclude or substantially diminish Rutman's ability to sell other brands of wine products competitive to Gallo" in that geographical market. Gallo's products purportedly serve as "door openers" or "call items" and facilitate Rutman's access to retail outlets. The loss of "door openers" has allegedly caused appellant to lose customers for the sale of wine products in the county and lessened competition in the sale of other product lines in the same geographical market by "frustrating" Rutman's ability to sell those other lines "through the cutbacks in personnel and services resulting from Gallo's wrongful termination of Rutman."

Rutman further alleges that with full knowledge that the elimination of Rutman as a distributor would hinder or eliminate competition in the sale of wine products competitive to Gallo in the county, appellee, WDI and unnamed co-conspirators engaged in an unlawful combination and conspiracy in unreasonable restraint of trade and commerce. This combination consisted in part of a continuing agreement, understanding and concert of action to engage in a group boycott of plaintiff, to willfully fail and refuse to provide plaintiff with products and supplies, including point-of-sale advertising and promotional materials, and to refrain from doing business with plaintiff.

III.

PER SE v. RULE OF REASON ANALYSIS

Appellant urges that a per se analytical standard is appropriate. Appellant relies on Klor's, Inc. v. Broadway-Hale Stores, 359 U.S. 207, 79 S.Ct. 705, 3

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L.Ed.2d 741 (1959), for the proposition that dealer terminations resulting from group boycotts where manufacturers and distributors conspire to deprive a distributor of the goods he needs to compete, are per se violations of section 1 of the Sherman Act. Klor's concerned several manufacturers and distributors who conspired amongst themselves and with a major retailer, Broadway-Hale, either not to sell to Klor's or to sell to it only at discriminatory prices and highly unfavorable terms. Klor's is distinguishable in that it alleges a widespread horizontal and vertical combination. Klor's expressly stated: "This is not a case of a single trader refusing to deal with another, nor even of a manufacturer and a dealer agreeing to an exclusive distributorship." 359 U.S. at 212, 79 S.Ct. at 709. The Court thus implied that the latter situations do not lend themselves to a per se standard of analysis.

Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761, 104 S.Ct. 1464, 1469, 79 L.Ed.2d 775, reh'g. den., 466 U.S. 994, 104 S.Ct. 2378, 80 L.Ed.2d 850 (1984), reaffirmed that only vertical arrangements accompanying or implementing price-fixing schemes are to be considered per se violations of the antitrust laws; other vertical arrangements are to be tested under the Rule of Reason. See also Car Carriers v. Ford Motor Company, 745 F.2d 1101, 1108 (7th Cir.1984), cert. denied, 470 U.S. 1054, 105 S.Ct. 1758, 84 L.Ed.2d 821 (1985). Though the Second Amended Complaint alleges that unnamed co-conspirators combined with Gallo and WDI in a concerted refusal to deal, appellant never alleges the existence of a horizontal or vertical arrangement which would trigger a per se analysis.

Gallo and WDI are not competitors. Appellant's claims of discrimination are vertical and nonprice-related. Any arrangement between them...