Valley Liquors, Inc. v. Renfield Importers, Ltd., 81-3016
| Decision Date | 21 May 1982 |
| Docket Number | No. 81-3016,81-3016 |
| Citation | 678 F.2d 742 |
| Parties | 1982-2 Trade Cases 64,744 VALLEY LIQUORS, INC., Plaintiff-Appellant, v. RENFIELD IMPORTERS, LTD., Defendant-Appellee. Seventh Circuit |
| Court | U.S. Court of Appeals — Seventh Circuit |
Richard J. Prendergast, Chicago, Ill., for plaintiff-appellant.
Morton Siegel, Siegel, Denberg, Vanasco, Shukovsky, Moses & Schoenstadt, Ltd., Chicago, Ill., for defendant-appellee.
Before BAUER, ESCHBACH, and POSNER, Circuit Judges.
Valley Liquors, Inc., is a wholesale wine and liquor distributor in northern Illinois, and Renfield Importers, Ltd., is one of its suppliers. Effective November 1, 1981, Renfield terminated Valley as a distributor of Renfield products (which include such popular brands as Gordon's and Martini & Rossi) in two counties, McHenry and Du Page (and part of a third, which we shall ignore to simplify this opinion). Valley sued, charging that Renfield had violated section 1 of the Sherman Act, 15 U.S.C. § 1, which forbids conspiracies or other agreements in restraint of trade. The case is before us on Valley's appeal under 28 U.S.C. § 1292(a)(1) from the denial by the district court of a motion for a preliminary injunction under section 16 of the Clayton Act, 15 U.S.C. § 26.
Until November 1, Renfield generally sold its products to several wholesalers in the same county. But its sales had not been growing as rapidly in Illinois as in the rest of the country, and it decided to adopt a system of restricted distribution whereby it would sell to one, or at most two, wholesalers in each county. (In some instances, however, the plan resulted in an increase in the number of wholesalers from one to two.) Although Valley was Renfield's largest wholesaler in McHenry and Du Page Counties, accounting for some 50 percent of Renfield's total sales there, the new plan terminated Valley and all of Renfield's other distributors in the two counties except Continental and Romano; they were, however, terminated in some other areas. There is unrebutted evidence that Valley had been selling Renfield products at prices five percent below those charged by Renfield's other distributors in McHenry and Du Page Counties and that Valley's termination followed discussions between Renfield and Continental and between Renfield and Romano in which Continental and Romano had expressed unhappiness at Renfield's terminating them in other areas. There is virtually no evidence concerning Renfield's motivation for the adoption of a more restricted distribution system and the concomitant realignment of wholesaler territories, except that it was a reaction to Renfield's disappointing sales in Illinois.
Valley contends that two distinct restraints of trade can be inferred from these facts. The first is a conspiracy among Renfield, Continental, and Romano to increase the wholesale prices of Renfield products in McHenry and Du Page Counties by cutting off Valley-Valley's termination being a concession demanded by Continental and Romano in exchange for consenting to the proposed realignment, under which they lost some of their territories. This is alleged to be a "horizontal" conspiracy, unlawful without more ("per se") under section 1 of the Sherman Act. The second alleged restraint of trade is the exclusion of Valley, pursuant to its distribution agreement with Renfield, from McHenry and Du Page Counties. Valley argues that this "vertical" restriction is unreasonable and hence unlawful under section 1's "Rule of Reason."
The district judge denied a preliminary injunction against Renfield's termination of Valley because he did not think that Valley had demonstrated that it was likely to win the case if tried in full. If the judge was right in his estimation of Valley's chances of success, he was right to deny a preliminary injunction, regardless of other considerations relevant to the exercise of his equitable powers.
If Continental and Romano had agreed to raise the prices of Renfield products in McHenry and Du Page Counties and to that end had persuaded Renfield (perhaps by threatening to discontinue carrying its products if it did not cooperate with them) to terminate Valley, their pesky low-price competitor, then they and their cat's paw Renfield would be guilty of a per se unlawful restraint of trade. Although there was no direct evidence of such a chain of events-in particular no evidence that Continental and Romano ever communicated with each other about Valley-we are asked to infer from the fact that Continental and Romano (separately) expressed unhappiness at being terminated in some of their sales areas that they demanded and received, as a quid pro quo, the termination of their major competitor in the two counties, Valley. However, this hypothesis is too speculative to compel a trier of fact to infer conspiracy, at least if Renfield may have had independent reasons for wanting to terminate Valley. We are asked to exclude that possibility because Valley was Renfield's largest and lowest-priced wholesaler in McHenry and Du Page Counties, and therefore its best. We follow the argument until "therefore." If Renfield had been content with a policy of maximizing wholesaler price competition, it would not have changed to a system of exclusive and dual wholesalers; it would have thought that the more competing wholesalers it had the better off it was. The adoption of a restricted distribution system implies a decision to emphasize nonprice competition over price competition, which such a system tends to suppress. This does not make restricted distribution good, or even lawful; we shall get to that question in a moment. Right now we are just concerned with whether Renfield may have had reasons for terminating Valley that were independent of the desires of Continental and Romano to be rid of the competition of a price cutter. It may have. That possibility is enough to rebut an inference of collusion with those distributors based solely on the termination of Valley.
We are mindful that Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164 (3d Cir. 1979), held that it is unlawful per se for a manufacturer to terminate a distributor at the behest of a competing distributor who wants to reduce price competition. Valley's allegation of a horizontal conspiracy is an effort to invoke Cernuto. It is a clumsy effort, since Cernuto is not a horizontal case: a horizontal conspiracy is one between two or more competing sellers; a conspiracy between a supplier and a wholesaler is one between firms in different stages of distribution. Perhaps, though, this is a pedantic...
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