U.S. v. Waste Management, Inc., 1377

• Decision Date: 06 September 1984
• Docket Number: D,No. 1377,1377
• Citation: 743 F.2d 976
• Parties: 1984-2 Trade Cases 66,190 UNITED STATES of America, Plaintiff-Appellee-Cross-Appellant, v. WASTE MANAGEMENT, INC. and EMW Ventures Incorporated, Defendants-Appellants-Cross-Appellees. ockets 83-6365, 84-6001.
• Court: U.S. Court of Appeals — Second Circuit

Page 976

743 F.2d 976

1984-2 Trade Cases 66,190

UNITED STATES of America, Plaintiff-Appellee-Cross-Appellant, v. WASTE MANAGEMENT, INC. and EMW Ventures Incorporated Defendants-Appellants-Cross-Appellees.

No. 1377, Dockets 83-6365, 84-6001.

United States Court of Appeals Second Circuit.

Argued June 12, 1984.

Decided Sept. 6, 1984.

John C. Christie, Jr., Washington, D.C. (Patrick J. Roach, G. Michael Epperson, Bell, Boyd & Lloyd, Washington, D.C., Francis J. Higgins, Michael Sennett, Andrew I. Gavil, Bell, Boyd & Lloyd, Chicago, Ill., Evan A. Davis, Cleary, Gottlieb, Steen & Hamilton, New York City), for defendants-appellants-cross-appellees Waste Management, Inc. and EMW Ventures Inc.

Andrea Limmer, Washington, D.C. (J. Paul McGrath, Asst. Atty. Gen., Charles F. Rule, Barry Grossman, John F. Greaney, Dept. of Justice, Washington, D.C., of counsel), for plaintiff-appellee-cross-appellant U.S.

Before VAN GRAAFEILAND, WINTER and PRATT, Circuit Judges.

WINTER, Circuit Judge:

Appellants Waste Management, Inc. ("WMI") and EMW Ventures Incorporated ("EMW") appeal from Judge Griesa's decision, 588 F.Supp. 498 (1983), after a bench trial, that WMI's acquisition of EMW violated section 7 of the Clayton Act, as amended, 15 U.S.C. Sec. 18, and from the resultant order that WMI divest Texas Industrial Disposal, Inc. ("TIDI"), a former EMW subsidiary.

We reverse.

BACKGROUND

This government antitrust action challenges WMI's acquisition of EMW's common stock. After the district court denied the government's motion for a temporary restraining order, the acquisition was consummated, and the case proceeded to trial before Judge Griesa sitting without a jury.

We summarize those facts that are not in dispute. WMI is in the solid waste disposal business. It provides services in twenty- WMI and Waste Resources each had subsidiaries that operated in or near Dallas. ¹ WMI has one subsidiary, American Container Service ("ACS") in Dallas, and another, Texas Waste Management, in the Dallas suburb of Lewisville. Waste Resources had a Dallas subsidiary called Texas Industrial Disposal, Inc. ("TIDI"). WMI now operates TIDI as a WMI sub.

seven states and had revenues of approximately $442 million in 1980. At the time of the acquisition, EMW was a diversified holding company that owned a subsidiary by the name of Waste Resources, which was in the waste disposal business in ten states and had revenues of $54 million in 1980.

Waste collection involves several different types of equipment and serves the needs of various types of customers. For present purposes, it is important to distinguish between "non-containerized" and "containerized" equipment. "Non-containerized" refers to trucks with compactors into which trash cans and bags are loaded by hand. "Containerized" equipment consists of two types of receptacles, "dumpsters" and "roll off," each emptied by different kinds of trucks. Dumpsters typically have a volume of one to eight cubic yards and are emptied by "front-load" trucks that pick the dumpsters up with clamps and empty them into a hopper. Roll-off containers range up to 50 cubic yards in volume and are carried to a dump, emptied and then returned. Trucks that transport roll-off containers are known, not surprisingly, as roll-off trucks. If the customer desires containerized service, the waste hauler provides the dumpster or roll-off container.

There are various relevant classes of customers: (i) single or multiple dwelling residential customers; (ii) apartment complexes of varying size, (iii) "business" customers--stores, restaurants, etc., and (iv) "industrial" customers--construction sites, factories, etc. Customers choose among the kinds of services according to their individual needs, the quantity of trash produced being a critical factor.

The parties strenuously disagree over the proper definition of the relevant product and geographic markets. The government contended in the district court that the product market should be defined in terms of equipment type and that front-load and roll-off waste collection service each constitutes a separate product market. WMI argued that the market includes all forms of waste collection. The district court adopted a definition of the relevant product market that differed from the positions of both parties. Judge Griesa concluded that the product market included all trash collection, except for collection at single-family or at multiple family residences or small apartment complexes. Rejecting WMI's contentions as to the relevant geographic market, the district court excluded Tarrant County, which includes Fort Worth, thus limiting the market to Dallas County plus a small fringe area.

Based on revenue data, Judge Griesa found that the combined market share of TIDI and ACS was 48.8%. ² He viewed that market share as prima facie illegal under United States v. Philadelphia National Bank, 374 U.S. 321, 364-66, 83 S.Ct. 1715, 1742-43, 10 L.Ed.2d 915 (1963). Agreeing with appellants that entry into the product market is easy--indeed, individuals operating out of their homes can compete successfully "with any other company"--Judge Griesa nevertheless held that proof of ease of entry did not rebut the prima facie showing of illegality. The district

court therefore ordered WMI to divest itself of TIDI. Because we conclude that potential entry into the relevant Dallas market by new firms or by firms now operating in Fort Worth is so easy as to constrain the prices charged by WMI's subs, we reverse on the grounds that the merged firm does not substantially lessen competition.

DISCUSSION

WMI raises the following claims which we treat seriatim: (1) the district court's definition of the relevant geographic and product markets and its determination of WMI's post-merger market share are erroneous; and (2) the district court erred in rejecting WMI's rebuttal of the prima facie case.

A. Market Definition and Determination of Market Share

In determining the relevant product and geographic market, Judge Griesa considered only firms that presently collect waste in competition with WMI's subs TIDI and ACS. He thus did not consider the effect of potential competition by new entrants upon the market power of the merged firm but rather treated this as part of the rebuttal to the prima facie case. Although potential competition resulting from easy entry can as logically be appraised as part of market definition, see R. Posner, Antitrust Law 132-33 (1976), we will utilize the traditional analysis of defining the market in terms of existing competitors.

We thus begin by determining which firms presently collect waste in actual competition with WMI (a term we use henceforth to include TIDI and ACS). WMI provides waste disposal services to business and industrial customers as do a number of other private haulers. Neither WMI nor these other haulers provides substantial services to residential customers since residential waste is generally collected by private or municipal haulers who provide only limited services to business/industrial customers. Residential and business/industrial customers are thus served largely by different firms.

One reason for the distinction between residential and business/industrial collection is found in customer preferences for collection by particular equipment at existing prices. Thus, residential customers largely prefer non-containerized service while business/industrial customers usually opt for containerized hauling. There is of course overlap, and the district court therefore did not define the market solely in terms of equipment distinctions. Some large apartment complexes prefer containerized service (and were included by Judge Griesa as customers in the relevant market), and some businesses make do with hand collection (also included as customers in the relevant market).

Another reason for the distinction (as modified by the overlaps) between residential and business/industrial collection is that most private haulers provide only containerized service and most municipalities provide only non-containerized service. The largest municipality, the City of Dallas, provides no containerized service. Moreover, the few municipalities that do provide containerized service to business/industrial customers were included as sellers in the relevant product market.

At bottom, however, the distinction between residential and business/industrial service rests on two facts, one economic and the other political. First, customers with large amounts of trash have a greater need for containerized service than do customers with smaller quantities; the former tend to be business/industrial and the latter residential. Second, the latter customers are, for political reasons, served by hand collection provided at low prices by municipalities. At the fringe, of course, some business/industrial customers have sufficiently little trash to be able to choose hand collection at existing prices while some residential customers, such as large apartment complexes, prefer containerized service. Some business/industrial customers haul their trash themselves, although the record indicates that is not a feasible alternative for many at existing prices.

Customer preferences for service, therefore, turn largely on the quantity of trash produced, and different kinds of equipment are most useful for different quantities of trash. It might be that in a market without municipal haulers the larger private haulers would offer a full line of services, and the relevant product market would be all trash collection. However, the decision of the City of Dallas and other municipalities to provide non-containerized service has narrowed the market available to private haulers. The fact that only a small fringe of customers have a meaningful choice at existing prices between hand collection, containerized service, or self-hauling demonstrates that the bulk of business/industrial customers will view the...