USA Petroleum Co. v. Atlantic Richfield Co.

• Citation: 859 F.2d 687
• Decision Date: 07 October 1988
• Docket Number: No. 87-5681,87-5681
• Parties: , 1988-2 Trade Cases 68,255 USA PETROLEUM COMPANY, Plaintiff-Appellant, v. ATLANTIC RICHFIELD COMPANY, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 687

859 F.2d 687

57 USLW 2249, 1988-2 Trade Cases 68,255

USA PETROLEUM COMPANY, Plaintiff-Appellant, v. ATLANTIC RICHFIELD COMPANY, Defendant-Appellee.

No. 87-5681.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 4, 1987.

Decided Oct. 7, 1988.

Maxwell E. Blecher, Blecher & Collins, Los Angeles, Cal., for plaintiff-appellant.

Ronald C. Redcay, Hughes, Hubbard & Reed, Los Angeles, Cal., for defendant-appellee.

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

Before ALARCON, NELSON and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge:

USA Petroleum Company (USA) sued Atlantic Richfield Company (ARCO) for violations of the Sherman Act, the Robinson-Patman Act, the Cartwright Act, and various state laws. USA subsequently voluntarily withdrew with prejudice its claim under section 2 of the Sherman Act. ARCO moved for summary judgment on USA's claim under section 1 of the Sherman Act, 15 U.S.C. Sec. 1, and the district court granted its motion. The court entered judgment for ARCO under Fed.R.Civ.P. 54(b), and USA timely appealed. We reverse.

I.

ARCO is an integrated oil company which, among other things, markets gasoline in the western United States. It sells gasoline to consumers both directly and indirectly through ARCO-brand dealers. USA is an independent marketer of gasoline, which it sells at retail under the brand name USA. USA competes directly with ARCO dealers at the retail level.

USA alleges that ARCO conspired with retail service station dealers selling ARCO-brand gasoline to fix retail prices at below-market levels. USA alleges that "ARCO's strategy was to eliminate the independents by fixing and subsidizing below-market prices and siphoning off the independents' volumes and profits," and that it succeeded in that strategy. According to USA, many independents have been driven out of business. ARCO's subsidies consisted of temporary volume allowances, temporary competitive allowances, and other price allowances extended to its distributors and dealers.

For the purpose of reviewing the district court's summary judgment order, we must assume these allegations to be correct. See Baker v. Department of Navy, 814 F.2d 1381, 1382 (9th Cir.1987).

The district court ruled that "[e]ven assuming that [USA] can establish a vertical conspiracy to maintain low prices, [it] cannot satisfy the 'antitrust injury' requirement of Clayton Act Sec. 4, without showing such prices to be predatory. Under the circumstances here concerned ... no such showing can be made." We disagree.

II.

The question on appeal is whether in the absence of proof of predatory pricing a competitor can recover damages because of a maximum resale price maintenance agreement. Specifically, we must decide whether a competitor's injuries resulting from vertical, non-predatory, maximum price fixing fall within the category of "antitrust injury". This is a difficult question, and one of first impression in this circuit. The Supreme Court has not spoken on this issue, and among the circuit courts only the Seventh Circuit has taken a position. See Jack Walters & Sons Corp. v. Morton Building, Inc., 737 F.2d 698 (7th Cir.1984), discussed below. The question requires us to look closely at the purposes and policies underlying the antitrust laws, and to determine which application of the doctrine of "antitrust injury" best implements those purposes and policies.

The concept of "antitrust injury" was put forward in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977):

We therefore hold that for plaintiffs to recover treble damages ... they must prove more than injury causally linked to an illegal presence in the market. Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful.

In Brunswick, the plaintiffs argued that an illegal merger had kept alive failing competitors. The claim was that a violation of the antitrust laws had prevented the plaintiffs from obtaining monopoly profits. The Supreme Court's decision was not surprising: a plaintiff should not be able to claim damages for being unable to gain a monopoly position, the type of advantage the antitrust laws were meant to prevent. See id. at 487-88, 97 S.Ct. at 697. The Court held that when the injury claimed "was not of 'the type that the statute was intended to forestall,' " damages under section 4 of the Clayton Act would not be available. Id. (quoting Wyandotte Co. v. United States, 389 U.S. 191, 202, 88 S.Ct. 379, 386, 19 L.Ed.2d 407 (1967)). ¹ See Orion Pictures Distribution Corp. v. Syufy Enters., 829 F.2d 946, 948-49 (9th Cir.1987) (no antitrust injury where the injury claimed was caused by a breach of contract, not by the alleged antitrust violation).

III.

To determine whether the injury USA alleges is of the type the antitrust laws were meant to prevent, we must look first to the Supreme Court's discussions of price fixing under the antitrust laws.

In United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940), a case involving horizontal price fixing, the Supreme Court held that price-fixing agreements were per se illegal. The Court responded as follows to the argument that the fixing of prices should be legal if the prices fixed were reasonable:

The reasonableness of prices has no constancy due to the dynamic quality of business facts underlying price structures. Those who fixed reasonable prices today would perpetuate unreasonable prices tomorrow, since those prices would not be subject to continuous administrative supervision and readjustment in light of changed conditions. Those who controlled the prices would control or effectively dominate the market. And those who were in that strategic position would have it in their power to destroy or drastically impair the competitive system. But the thrust of the rule is deeper and reaches more than monopoly power. Any combination which tampers with price structures is engaged in an unlawful activity. Even though the members of the price-fixing group were in no position to control the market, to the extent that they raised, lowered, or stabilized prices they would be directly interfering with the free play of market forces. The Act places all such schemes beyond the pale and protects that vital part of our economy against any degree of interference. Congress has not left with us the determination of whether or not particular price-fixing schemes are wise or unwise, healthy or destructive.

Id. at 221, 60 S.Ct. at 843. To the argument that the prices had been fixed in such a way as to stabilize the market, the Court stated:

[I]n terms of market operations stabilization is but one form of manipulation. And market manipulation in its various manifestations is implicitly an artificial stimulus applied to (or at times a brake on) market prices, a force which distorts those prices, a factor which prevents the determination of those prices by free competition alone.

* * *

Under the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.

* * *

Price-fixing agreements may or may not be aimed at complete elimination of price competition. The group making those agreements may or may not have power to control the market.... Whatever economic justification particular price-fixing agreements may be thought to have, the law does not permit an inquiry into their reasonableness. They are all banned because of their actual or potential threat to the central nervous system of the economy.

Id. at 223, 225-26 n. 59, 60 S.Ct. at 844, 845-46 n. 59.

The Supreme Court in a later case thought it evident that the rule that price fixing was per se illegal extended to the fixing of maximum prices.

The Court of Appeals erred in holding that an agreement among competitors to fix maximum resale prices of their products does not violate the Sherman Act. For such agreements, no less than those to fix minimum prices, cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment. We reaffirm what we said in United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223 : "Under the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se."

Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 213, 71 S.Ct. 259, 260, 95 L.Ed. 219 (1951).

Kiefer-Stewart involved both a vertical maximum price fixing (maximum resale price maintenance) agreement and a horizontal agreement among competitors to impose that price restraint. Id. at 212, 71 S.Ct. at 260. When the issue of vertical maximum price-fixing was more directly raised, the Supreme Court affirmed that that form of market manipulation was covered by the per se rule against price fixing.

We think Kiefer-Stewart was correctly decided and we adhere to it. Maximum and minimum price fixing may have different consequences in many situations. But schemes to fix maximum prices, by substituting the perhaps erroneous judgment of a seller for the forces of the competitive market, may severely intrude upon the ability of buyers to compete and survive in that market. Competition, even in a single product, is not cast in a single mold. Maximum prices may be fixed too low for the dealer to furnish services essential to the value which goods have for the consumer or to furnish services and conveniences which consumers desire and for which they are willing to pay. Maximum price fixing may channel distribution through a few large or specifically advantaged dealers who otherwise would be subject to significant...