Tire Sales Corp. v. Cities Service Oil Co.

• Decision Date: 04 March 1976
• Docket Number: No. 74 C 599.,74 C 599.
• Citation: 410 F. Supp. 1222
• Parties: TIRE SALES CORPORATION, a corporation, Plaintiff, v. CITIES SERVICE OIL COMPANY, a corporation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

410 F. Supp. 1222

TIRE SALES CORPORATION, a corporation, Plaintiff, v. CITIES SERVICE OIL COMPANY, a corporation, Defendant.

No. 74 C 599.

United States District Court, N. D. Illinois, E. D.

March 4, 1976.

COPYRIGHT MATERIAL OMITTED

Robert W. Bergstrom, Chicago, Ill., for plaintiff; Bergstrom, Davis & Olson, Chicago, Ill., of counsel.

Samuel J. Betar, Jack W. Grady, Chicago, Ill., for defendant; Schippers, Betar, Lamendella & O'Brien, Chicago, Ill., of counsel.

MEMORANDUM OPINION

GRADY, District Judge.

Prior to January 1, 1971, the plaintiff, Tire Sales Corporation, was a distributor for the defendant, Cities Service Corporation (hereinafter sometimes called "Citgo") of automotive tires, batteries and accessories ("TBA") for resale to Citgo dealers on the south side of Chicago. This treble damage antitrust action arises from the termination of the distributorship agreement by Cities Service and the alleged subsequent elimination of Tire Sales from the market of wholesale sales to Citgo dealers.

Tire Sales filed its complaint under Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, alleging a tying arrangement, group boycott, allocation of markets, exclusive dealing and reciprocal dealing in violation of Section 1 of the Sherman Act, 15 U.S.C. Sec. 1, and Section 3 of the Clayton Act, 15 U.S.C. Sec. 14. In addition, Tire Sales alleges that Cities Service monopolized, attempted to monopolize and conspired to monopolize the sale of TBA to Citgo dealers in violation of Section 2 of the Sherman Act, 15 U.S.C. Sec. 2. Cities Service denies the alleged violation and counterclaims against Tire Sales for the purchase price of certain goods. Individual counterdefendants are two shareholder officers of Tire Sales, George Nordstrom and Edward Laughlin, alleged guarantors of payment.

The parties have each filed motions for summary judgment, supported by various depositions, affidavits, answers to interrogatories, and other documents.¹

An understanding of this case requires a description of the distribution of petroleum and TBA to Citgo dealers. Citgo dealers are independent businessmen who enter into separate agreements with Cities Service to lease service stations and to buy petroleum products. The agreements are for terms varying from one month to one year, and are terminable upon notice of from one month to 90 days.

In its sales of TBA to its dealers, Cities Service uses what is called the "purchase-resale" system. Under this method, it purchases the products from manufacturers and resells them to a distributor, which, in turn, resells to the dealer. The products are shipped directly from the manufacturer to the distributor, with Cities Service being billed. Cities Service makes its profit by charging the distributor a higher price than it pays the manufacturer. The defendant does not explicitly require its dealers to purchase TBA from its distributor; according to Cities Service, its dealers are free to purchase whatever brands of TBA they choose from whatever distributors they choose.

The purchase-resale method of TBA distribution was first used in late 1965. Until then, Cities Service, along with other major oil companies, used the "sales-commission" system, in which the oil company agreed to "sponsor" the sale of a certain manufacturer's TBA to its dealers in exchange for a commission from the manufacturer. This differed from the purchase-resale method in that the oil company did not purchase the product itself, but instead acted as a sales agent. Cities Service abandoned the sales-commission method after the Federal Trade Commission successfully challenged its use by other companies. As will be more fully explained below, the sales-commission plan was held to be a violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. Sec. 45, in Atlantic Refining Co. v. F. T. C., 381 U.S. 357, 85 S.Ct. 1498, 14 L.Ed.2d 443 (1965); F. T. C. v. Texaco, Inc., 393 U.S. 223, 89 S.Ct. 429, 21 L.Ed.2d 394 (1968); and Shell Oil Co. v. F. T. C., 360 F.2d 470 (5th Cir. 1966), cert. denied, 385 U.S. 1002, 87 S.Ct. 703, 17 L.Ed.2d 541 (1967).

The amount of business involved in Citgo's TBA sales is considerable. Cities Service's records show that in 1972 its purchases of TBA for direct or indirect resale to its dealers in the Chicago area totaled over $900,000.00.

Under both the sales-commission and purchase-resale systems, the tire company whose products Cities Service sponsored on the south side of Chicago was, until January 1, 1971, Uniroyal, Inc.² Because it was then a Uniroyal distributor, Tire Sales was used by Cities Service as its distributor. Cities Service terminated its agreement with Uniroyal in late 1970 and entered into contracts with Firestone and Goodyear instead, allegedly because of the declining public acceptance of Uniroyal tires. (It should be noted, however, that Tire Sales' purchases of Uniroyal tires under Cities Service's purchase-resale plan increased dramatically in 1970 over the previous two years.³).

Cities Service, apparently reluctant to lose Tire Sales as a distributor, attempted to aid Tire Sales in efforts to obtain a Goodyear or Firestone distributorship. These efforts proving fruitless, Cities Service replaced Tire Sales with Berry Tire Company, a Goodyear and Firestone distributor.

Although Cities Service asserts that its dealers are not required to buy its TBA, Tire Sales' business among Citgo dealers was destroyed after the termination of its distributorship contract. In 1971, its sales to Citgo dealers were less than a tenth of what they had been the previous year, and the following year they fell to zero.

The parties sharply dispute the reason for the capture of the Citgo wholesale market by Berry. Cities Service contends that it was the result of legitimate sales efforts directed by it and Berry at the dealers. It denies that any coercion was used. Its salesmen, often in the company of Berry personnel, made weekly trips to the stations to discuss TBA sales. Defendant also provided TBA advertising and display material for the stations. In addition, Cities Service several times a year helped sponsor "TBA Fairs," at which Citgo dealers, generally after being treated to drinks, dinner and door prizes, were solicited for TBA products available through the "approved" distributor. One of these Fairs, called a "Spring Fling," was held by Cities Service and Berry at Berry's warehouse on March 31, 1971, for the purpose of acquainting the dealers with Berry.

According to depositions of several present and former Citgo dealers, Cities Service engaged in more than mere salesmenship. For example, dealers testified that if they failed to buy from Berry, they were threatened with cancellation of their leases, and one dealer testified that Cities Service refused to make needed repairs of the station premises. Several dealers who refused to buy from Berry had their leases terminated or changed to shorter terms shortly thereafter. One such dealer terminated the lease himself after his yearly lease was replaced with a monthly one. There is no direct evidence in the record, however, that the failure to buy from Berry was the cause of termination of a lease.

In its counterclaim, Cities Service asserts, and the counterdefendants do not dispute, that Tire Sales has failed to pay for goods received from Citgo during 1970-71 and that Nordstrom and Laughlin have failed to pay under their personal guarantee. The counterdefendants' only defense is that the claim arose in the course of Citgo's violations of the antitrust laws.

In disposing of the cross motions for summary judgment, we observe at the outset that summary judgment is frequently inappropriate in antitrust cases, "where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot." Poller v. Columbia Broadcasting Systems, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458, 464 (1962). In deciding these cross motions, the evidence must be viewed most favorably to the party opposing the motion. Norfolk Monument Co. v. Woodlawn Memorial Gardens, Inc., 394 U.S. 700, 89 S.Ct. 1391, 22 L.Ed.2d 658 (1969).

TYING ARRANGEMENT

When the evidence is so viewed, we must deny both parties' motions as they pertain to the tying-arrangement aspect of this case. A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier." Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 518, 2 L.Ed.2d 545, 550 (1958). The practice is made illegal by Section 3 of the Clayton Act if the tying product is a commodity; otherwise, it is outlawed by Section 1 of the Sherman Act. Thus, in the present case, if TBA is regarded as tied to sales of petroleum products, the practice violates the Clayton Act; if the tie is only to the service station leases, it violates the Sherman Act.⁴ See Lessig v. Tidewater Oil Co., 327 F.2d 459 (9th Cir. 1969), cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046 (1964).

The law looks at tying arrangements with such disfavor that, if certain threshold elements are present, they are regarded as per se illegal, despite any possible defenses on grounds of reasonableness that may be offered. Northern Pacific, supra, 356 U.S. at 5, 78 S.Ct. at 518, 2 L.Ed.2d at 549. To apply the per se rule, it must be shown, first, that there is in fact a tying arrangement. Second, the defendant must possess sufficient power in the market for the tying product to impose an appreciable restraint in the market for the tied product. Finally, a not insubstantial amount of commerce in the tied product must be involved. In Clayton Act cases, the plaintiff must prove only one of the last two elements; in Sherman Act cases, both of them. Times-Picayune Publishing Co. v....