Trace X Chemical, Inc. v. Canadian Industries, Ltd.

• Decision Date: 29 June 1984
• Docket Number: No. 83-1847,83-1847
• Parties: 1984-2 Trade Cases 66,089 TRACE X CHEMICAL, INC. and John F. Arens, Appellees, v. CANADIAN INDUSTRIES, LTD., C.I.L. Ammunition, Inc., I.C.I. America, Inc., and Imperial Chemical Industries Ltd., Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 261

738 F.2d 261

1984-2 Trade Cases 66,089

TRACE X CHEMICAL, INC. and John F. Arens, Appellees, v. CANADIAN INDUSTRIES, LTD., C.I.L. Ammunition, Inc., I.C.I.

America, Inc., and Imperial Chemical Industries

Ltd., Appellants.

No. 83-1847.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 15, 1983.

Decided June 29, 1984.

Davis, Polk & Wardwell, New York City, Friday, Eldredge & Clark, Little Rock, Ark., for appellants.

James B. Blair, Springdale, Ark., for appellees.

Before McMILLIAN, JOHN R. GIBSON and BOWMAN, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Canadian Industries, Ltd., and CIL Ammunition, Inc., appeal from a judgment in favor of Trace X Chemical, Inc., and John F. Arens on their claim against the CIL group under Section 2 of the Sherman Act, 15 U.S.C. Sec. 2 (1982). Following the jury verdict of $500,000, the district court trebled the award pursuant to Section 4 of the Clayton Act, 15 U.S.C. Sec. 15 (1982). CIL's motions for judgment notwithstanding the verdict and for a new trial were denied. Trace X manufactured and distributed cast TNT primers for use in the mining industry. CIL manufactured TNT and was the principal source of TNT for Trace X. Arens, Trace X's president, claimed that Trace X was forced out of business by CIL's anti-competitive conduct, particularly CIL's refusal of credit and its failure to replace allegedly defective TNT. CIL appeals from the judgment on the grounds that (1) there was insufficient evidence of any anti-competitive conduct on its part or that CIL caused the shutdown of Trace X's business, (2) the district court erred in admitting irrelevant, prejudicial documents, and (3) Trace X failed to adequately prove its damages. For the reasons stated below, we reverse.

I.

When Trace X first began to buy TNT from CIL, it did so through Gulf Oil Company, Trace X's principal customer. This arrangement permitted Trace X to use Gulf's credit. Trace X had not provided the financial information required by CIL's credit section; therefore, any direct purchases by Trace X were to be paid by cash or certified check.

In April, 1976, CIL's credit section authorized Trace X to make direct purchases on thirty days credit, up to a limit of $16,000--the cost of one truckload of TNT. If Trace X ordered more than one load in a month, it would have to pay for each load before receiving the next. If the order went through Gulf, however, CIL would extend unlimited credit.

To meet the demand of its rapidly increasing sales, Trace X relied solely on CIL for its supply of TNT. Since the Trace X primer was composed of approximately 95 percent TNT, Trace X was vitally concerned with the availability, quality, and price of TNT. Because of Trace X's ever-increasing need for TNT, Arens became interested in manufacturing TNT. In February, 1976, he contacted CIL about its patented continuous-process method for making TNT, and CIL offered to license its process at a cost of $3,500,000. Instead, in late 1976, Arens purchased the equipment and blueprints of a military batch-process TNT plant in Childersburg, Alabama. Arens planned to reconstruct the plant in Arkansas and operate it there. Trace X prepared a prospectus for potential investors in its TNT manufacturing process. By March, 1977, Trace X had commitments for investment only from Arens and Szaloczi, vice president of Trace X. No contracts or commitments had been made by any customer other than Trace X itself.

From April through September, 1976, CIL's deliveries of TNT to Trace X increased steadily. CIL billed Gulf for almost all of Trace X's purchases during this period, but Gulf refused to pay, stating that Trace X was responsible for the purchases. After totalling the amount due on all these purchases and subtracting the amount owed by CIL to Trace X for primers, Trace X owed CIL $160,000, an amount far beyond Trace X's credit limit of $16,000.

To settle this account CIL met with Arens in October of 1976. Arens argued that according to Trace X's accounts, CIL owed Trace X rather than Trace X owing CIL because Trace X had received no invoices from CIL, while Trace X invoices to CIL for primers remained unpaid. CIL threatened to stop shipping TNT to Trace X if arrangements were not made to pay for the TNT that Trace X had received. After negotiating, Trace X agreed to pay CIL the $160,000 over a ten-week period. Arens also gave CIL his personal guarantee. CIL agreed to ship 40,000 pounds of TNT a week for ten weeks to Trace X and reaffirmed its commitment to supply all of Trace X's TNT requirements subject to availability. CIL insisted that future purchases be cash in advance. In February, 1977, CIL gave Trace X the further written assurance that it would supply 100,000 pounds of TNT per week thereafter.

In September of 1976 some of Trace X's customers complained that primers were misfiring. Trace X took back the faulty primers, gave its customers credit, and made and shipped them new primers. Arens told CIL that primers manufactured by Trace X had been failing and that tests conducted by Trace X showed that the TNT was at fault. CIL disputed this and refused to replace the TNT. CIL maintained that it was Trace X's manufacturing process, rather than defective TNT, that had caused the primer misfires.

In March, 1977, Trace X again asked for credit, presenting financial statements for the year ending September, 1976. CIL's credit section again declined to grant credit, stating that it would reconsider if provided with current, audited information for the six months from October, 1976, through March, 1977.

Arens shut down Trace X's primer business and decided to abandon its TNT project in March, 1977. According to Arens he was forced to shut down because CIL refused to extend credit to Trace X and would not replace the allegedly defective TNT. At the meeting in late March when Arens again asked CIL to replace the TNT, Ingham, CIL's marketing manager responded: "Why would we do that? If we exchange the TNT, you will just use your profits to compete against us in the manufacture of TNT."

II.

By a general verdict the jury found that CIL violated Section 2 of the Sherman Act by monopolizing interstate commerce and by attempting to monopolize interstate commerce. Our scope of review of a jury verdict is limited. Roesch, Inc. v. Star Cooler Corp., 712 F.2d 1235, 1237 (8th Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 1707, 80 L.Ed.2d 180 (1984) (en banc). We must consider the evidence in the light most favorable to Trace X and give it the benefit of all legitimate inferences. Continental Ore Co. v. Union Carbide and Carbon Corp., 370 U.S. 690, 696, 82 S.Ct. 1404, 1409, 8 L.Ed.2d 777 (1962); Roesch, Inc., 712 F.2d at 1237; J & J Farms, Inc. v. Cargill, Inc., 693 F.2d 830, 834-35 (8th Cir.1982). But the jury's factfinding power is not without limit. When the evidence leaves no room for a reasonable difference of opinion as to the proper resolution of the case, it should be decided by the court as a matter of law. Roesch, Inc. v. Star Cooler Corp., 671 F.2d 1168, 1171 (8th Cir.1982), aff'd by an equally divided court, 712 F.2d 1235 (8th Cir.1983); Admiral Theatre Corp. v. Douglas Theatre Co., 585 F.2d 877, 883 (8th Cir.1978).

III.

The elements of an attempted monopolization claim under Section 2 of the Sherman Act are as follows: (1) specific intent to control prices or destroy competition in some part of commerce; (2) predatory or anti-competitive conduct directed to accomplishing the unlawful purpose; and (3) a dangerous probability of success. Inglis v. ITT Continental Baking Co., 668 F.2d 1014, 1027 (9th Cir.1981), cert. denied, 459 U.S. 825, 103 S.Ct. 58, 74 L.Ed.2d 61 (1982); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 270 (7th Cir.1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1277, 71 L.Ed.2d 461 (1982); Blair Foods, Inc. v. Ranchers Cotton Oil, 610 F.2d 665, 669 (9th Cir.1980).

To establish monopolization in violation of Section 2 it must be shown that CIL: (1) possessed monopoly power in the relevant market, and (2) used its monopoly power to foreclose competition, gain a competitive advantage, or destroy a competitor. United States v. Griffith, Inc., 334 U.S. 100, 107, 68 S.Ct. 941, 945, 92 L.Ed. 1236 (1948); Paschall v. Kansas City Star Co., 727 F.2d 692, 696 (8th Cir.1984) (en banc); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 275-76 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980).

Although at trial CIL contested every element of both claims, only the element of anti-competitive conduct or the use of monopoly power is at issue on appeal. ¹ To prove a violation of Section 2 under the Sherman Act, whether based on a claim of attempted monopolization or actual monopolization, it must be shown that CIL engaged in anti-competitive behavior. As explained by the court in Northeastern Tel. Co. v. American Tel. & Tel. Co., 651 F.2d 76 (2d Cir.1981), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 654 (1982), a mere showing of monopoly power unaccompanied by evidence of anti-competitive behavior is insufficient to support a claim for monopolization. Therefore, a conclusion that CIL's activities were not anti-competitive would absolve it of liability under both claims. 651 F.2d at 85. These general principles were outlined in the district court's charge to the jury.

According to Trace X, CIL engaged in monopolistic conduct with the intent and effect of driving Trace X out of business. Specifically, Trace X contends that CIL's refusal to extend credit or replace the defective TNT constituted anti-competitive, monopolistic conduct. CIL maintains, however, that its denial of credit and its refusal to replace the TNT were acts of ordinary commercial conduct.

Acts which would constitute an unlawful use of monopoly power are those "derived from [the monopolist's] power in the market or its size, ... acts which could only have been performed by one with the...