Terry's Floor Fashions v. Burlington Industries

• Decision Date: 28 June 1983
• Docket Number: No. 81-451-CIV-5.,81-451-CIV-5.
• Citation: 568 F. Supp. 205
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: TERRY'S FLOOR FASHIONS, INC., Plaintiff, v. BURLINGTON INDUSTRIES, INC., Lees Carpets, a Division of Burlington Industries, Inc., and Eatman's Carpets, Inc., Defendants.

568 F. Supp. 205

TERRY'S FLOOR FASHIONS, INC., Plaintiff, v. BURLINGTON INDUSTRIES, INC., Lees Carpets, a Division of Burlington Industries, Inc., and Eatman's Carpets, Inc., Defendants.

No. 81-451-CIV-5.

United States District Court, E.D. North Carolina, Raleigh Division.

June 28, 1983.

COPYRIGHT MATERIAL OMITTED

William W. Webb, Raleigh, N.C., for plaintiff.

Robert W. Spearman, Raleigh, N.C., Daniel G. Clodfelter, Moore & Van Allen, Charlotte, N.C., for defendants.

ORDER

JAMES C. FOX, District Judge.

Plaintiff, a North Carolina corporation which is engaged in the business of selling and installing commercial and residential carpet, initiated this action pursuant to various federal and state antitrust laws by complaint filed July 9, 1981. Named as defendants are Eatman's Carpets, Inc., which is also a North Carolina corporation and is also engaged in the sale and installation of carpeting, and Lees Carpets, a Division of Burlington Industries, Inc., which is a manufacturer of residential and commercial grade carpet. The case is before the court on defendants' motions to dismiss and for summary judgment, to which plaintiff has responded.

This action presents an increasingly common scenario in which the plaintiff, a disappointed former distributor of a defendant manufacturer's products, asserts that its distributorship agreement was terminated by the manufacturer at the behest of a rival distributor, thereby causing plaintiff great economic injury, and constituting violations of various federal and state antitrust statutes.

Plaintiff is a dealer in Cary, North Carolina, and is in the business of selling and installing carpet and other floor covering products for residential and commercial purposes. Plaintiff first began to sell products manufactured by defendant Burlington in 1975. Prior to 1977, plaintiff primarily sold Lees Carpet products to subcontractors and homeowners for residential use. Beginning in 1977, plaintiff purchased from Lees and sold an amount of commercial grade carpeting; however, in mid-1980 Lees decided that it did not want to carry plaintiff as one of its principal commercial grade carpet dealers. In February, 1981, Lees terminated its business relationship with plaintiff. Defendant Eatman's is also a dealer of commercial and residential carpets, and commenced doing business with Lees in 1970 in both the residential and commercial grade carpet markets. Plaintiff and Eatman's were and are competitors.

In its second amended complaint filed September 23, 1981, plaintiff asserted four claims: (1) that Lees and Eatman's combined and conspired to restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) that Eatman's has attempted to monopolize the relevant market defined in paragraph 11 of the second amended complaint, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, and that Lees has conspired with Eatman's in the alleged attempted monopolization; (3) that Lees has engaged in unlawful price discrimination prohibited by the Robinson-Patman Act, 15 U.S.C. § 13(a) and that Eatman's has knowingly induced and received such price discrimination in violation of 15 U.S.C. § 13(f); and (4) that the actions of defendants constitute violations of the North Carolina Unfair Trade Practices Act, N.C.Gen.Stat. § 75-1 et seq. Lees has filed a counterclaim for the price of carpet purchased by and delivered to plaintiff, for which plaintiff has not paid.

Defendants have moved to dismiss, or, in the alternative, for summary judgment, alleging: (1) that plaintiff has failed to show a contract or conspiracy in restraint of trade between Eatman's and Lees, in violation of Section 1 of the Sherman Act; (2) that, even should adequate evidence of a conspiracy be found to exist, plaintiff has failed to demonstrate any anti-competitive effect of the alleged conspiracy; (3) that plaintiff has failed to demonstrate an attempted monopolization of the alleged relevant market, and particularly, that plaintiff has failed to demonstrate that there existed a "dangerous probability" that Eatman's would succeed in its alleged attempted monopoly; (4) that plaintiff has failed to allege on the face of its complaint two "comparable sales," as required by the Robinson-Patman Act; and (5) that plaintiff's pendent state law claims are without merit.

All parties have conducted extensive discovery. The case has been extensively and excellently briefed, and the court heard the arguments of counsel on February 22, 1983. Accordingly, the court concludes that the motions are ripe for disposition.

I. The Carpet Industry and Burlington's Marketing Scheme

In order to provide a foundation for an understanding of the relations between the parties, the court must briefly examine the floor-covering industry, the method by which carpet products are bought and sold and, particularly, Burlington's marketing scheme.

The record reveals a vigorous and highly competitive industry at all levels. Burlington is but one of a long list of corporations which manufacture carpet for commercial and residential use. Plaintiff and Eatman's were among 42 carpet dealers in Eastern North Carolina authorized to sell and install Lees commercial grade carpet.

For purposes of sales and distribution, Lees has divided North Carolina into two main territories. Both plaintiff and Eatman's were in the Lees territory covering Eastern North Carolina. The Lees sales representative during the times material to this action was John Cummings. Lees manufactures two different types of carpet, one designed primarily for residential use and the other designed primarily for commercial use. Although the types of carpet used in the residential and commercial markets are to some extent dissimilar, the main differentiation in the two markets is in the method by which the carpet is bought and sold. Residential carpeting is usually sold through retail outlets serving walk-in customers or through residential developers. Commercial carpet is usually sold on a competitive bidding basis through architects and contractors. This distinction is important in Lees overall marketing strategy. Dealers who wish to engage in the sale of commercial grade carpets must market their product and service directly to the architect or engineer who is responsible for the project on which competitive bids will be let. Personal contact, quality of installation, and reliability of service is vastly more important in the commercial context than in the residential context. Conversely, a dealer who primarily wishes to sell in the residential market must commit more of his resources to a showroom and to media advertising.

Within the two markets of carpet, the products of the various manufacturers are virtually interchangeable. End users of the carpet rarely require that a specific brand, and that brand only, be used. Accordingly, particularly in the commercial market, the dealer's personal relations with the party who will let the bids, the quality of the dealer's installation, and the dealer's reputation for service and reliability are particularly important. The success of a manufacturer in the commercial market is at least as dependent upon the reputation of its distributors as upon the quality of its product. The dealers, however, are usually not wedded to any particular manufacturer. Both plaintiff and Eatman's were authorized distributors for many manufacturers.¹ Accordingly, there exists a symbiotic relation between manufacturers and dealers — manufacturers are desirous of dealing with distributors who have a reputation for quality installation and service; but in order to encourage these dealers to actively promote the manufacturer's product, the manufacturer must offer the dealer some incentive, usually in the form of price. The manufacturer must be selective in determining which of its authorized distributors receives the favorable pricing treatment so as to maintain its reputation as to quality with end users. The decision on which distributor will be given the better price is usually made by the sales representative for the region. The final result is that within any region's market scheme, there will be some authorized dealers who receive lower prices from the manufacturer than do other authorized distributors within that same region. Plaintiff does not deny that this market scheme is common in the commercial carpet industry.

II. Relations Among the Parties

Eatman's began dealing with Lees in 1970, and the record reveals that Eatman's was a reputable, high-volume commercial carpet dealer.² Plaintiff, on the other hand, had primarily been engaged in the residential carpet market until 1977, when it apparently decided to aggressively enter the commercial market. Plaintiff had begun dealing in the residential market with Lees in 1975, and began dealing with Lees in the commercial market in 1977. Inevitably plaintiff and Eatman's began to compete for major commercial projects, in particular, a large project at the University of North Carolina. Eatman's received a price discount from Lees; plaintiff originally received a small discount, and later received no discount at all on its purchases of Lees carpets. Plaintiff's owner, Ralph Betts, became concerned that plaintiff was being quoted carpet by Lees at the list price for the carpet. Betts began to request that Lees quote plaintiff a discounted price on the carpet. Apparently two reasons were advanced for the request: first, that plaintiff was being quoted better prices for similar carpet by a competitor of Lees, and wanted Lees to offer competitive prices; and, second, that Eatman's was getting a better price than plaintiff. Lees representative, Cummings, consistently refused to provide plaintiff with a discount price.

Ultimately, as will be described below, plaintiff was terminated by Lees as a distributor of its products. However, plaintiff's business has continued to prosper since the termination and...