Varney v. Coleman Company, Inc.

• Decision Date: 04 November 1974
• Docket Number: Civ. A. No. 72-118.
• Citation: 385 F. Supp. 1337
• Parties: Edward D. VARNEY v. The COLEMAN COMPANY, INC., and Skiroule Ltee.
• Court: U.S. District Court — District of New Hampshire

385 F. Supp. 1337

Edward D. VARNEY v. The COLEMAN COMPANY, INC., and Skiroule Ltee.

Civ. A. No. 72-118.

United States District Court, D. New Hampshire.

November 4, 1974.

John P. Griffith, Hamblett, Kerrigan, LaTourette & Lopez, Nashua, N. H., for plaintiff.

Shane Devine, Devine, Millimet, Stahl & Branch, Manchester, N. H., John R. Hally, Nutter, McClennen & Gish, Boston, Mass., for defendants.

OPINION

BOWNES, District Judge.

In the Spring of 1970, The Coleman Company, Inc., ("Coleman") terminated the distribution contract of Edward D. Varney ("Varney" or "plaintiff"). As a result of that termination, Varney initiated an action based in part on civil treble-damage antitrust claims pursuant to Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and Section 7 of the Clayton Act, 15 U.S.C. § 18. The complaint also contains a count brought pursuant to the Automobile Dealers' Day in Court Act, 15 U.S.C. § 1221.

Defendants have moved for summary judgment as to these counts. A hearing was held on the motion on September 26, 1974.

FACTS

The plaintiff Varney operated an individual proprietorship, which sometimes did business as Northern Distributors. Plaintiff acted as distributor in the New England states between 1966 and 1970 for the snowmobiles manufactured by defendant Skiroule Ltee ("Skiroule") and its predecessor organization. Plaintiff's distributorship agreements covered only Maine and New Hampshire at first, but were subsequently extended to include all New England states. Plaintiff operated under one year contracts until 1969, at which time he executed a three-year contract covering the snowmobile seasons 1969-70, 1970-71, and 1971-72.

As a distributor, plaintiff was charged with purchasing prescribed quotas of snowmobiles from Skiroule and reselling them to dealers, many of whom were recruited by plaintiff. Additionally, plaintiff was responsible for delivering the snowmobiles to the dealers, stocking parts, arranging service and honoring warranties.

In the three seasons preceding the sale of his distributorship, plaintiff increased sales from approximately $170,000 in 1967-68 to $705,000 in 1968-69 and to $1,275,000 in 1969-70. His approximate net profits in those years were $8,500, $8,600, and $16,000, respectively.

Defendant Coleman is a publicly-held Kansas-based corporation, which since 1960 has emphasized sales of outdoor recreational products and air controlled products related to residential and recreational shelter structures.

Coleman never profited from the sale of snowmobiles, which amounted to approximately 10% of its total sales. Coleman's snowmobile operations lost more than $1,000,000 in 1971 and c. $1,000,000 in 1972. Coleman sold the snowmobile division in August, 1974, at a loss of millions of dollars.

Defendant Skiroule was a Canadian company. Its founder, Rejean Houle, first manufactured snowmobiles in 1965, incorporating Skiroule Ltee in 1967. From the outset, Skiroule distributed on a direct-to-dealer basis in its largest single market, Quebec, and primarily through distributors such as plaintiff elsewhere.

Skiroule grew rapidly, selling c. 1,500 machines in 1966-67, c. 7,000 machines in 1968 and c. 15,000 in 1969-70.

In early 1969, a business broker brought Skiroule to the attention of Coleman. Negotiations followed, and a formal closing occurred on December 23, 1969, when Coleman purchased Skiroule in consideration of c. $14,000,000 made up of cash and principally common stock of Coleman.

The snowmobile market boomed in the years 1965 to 1969, and levelled off thereafter. Canadian production grew from c. 36,000 machines to c. 185,000 machines during the years 1965-69. In North America the growth was from c. 75,000 to c. 285,000 machines. The market has always been dominated by the Canadian company, Bombardier, Ltd., which has a current market share of approximately 50%, up from the approximate 40% it controlled when Coleman purchased Skiroule.

Of the sixty to sixty-five firms that were in the snowmobile market at the time of the purchase of Skiroule, Skiroule was among the market's top ten manufacturers. However, its total market share of 3.5% in 1968-69 and an estimated 4.7% in 1969-70 placed it among the lowest four of the top ten, which together shared about twelve-tofourteen percent of the market, or about the same amount as the fifth and sixth largest firms combined. Skiroule controlled less than 2% of the New England market and 3% or less of the United States market for the years 1970 and 1971.

The history of the negotiations between Varney and defendants is contested, but for the purposes of ruling on the motion for summary judgment, it is sufficient to know that, after the sale of Skiroule, defendants acquired rights to distribute their snowmobiles from all five United States distributors, including plaintiff.

ISSUES

1. Were defendants' negotiations for the acquisition of plaintiff's dealership agreement and other conduct behavior that constituted a contract, combination or conspiracy in violation of Section 1 of the Sherman Act?

2. Was the foregoing behavior indicative of an attempt to monopolize in violation of Section 2 of the Sherman Act?

3. Was control of the distribution of Skiroule snowmobiles tantamount either to an attempt to monopolize or a monopoly in New England in violation of Section 2 of the Sherman Act?

4. Did Coleman's acquisition of Skiroule substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act?

5. Did Coleman's acquisition of Skiroule substantially lessen competition or tend to create a monopoly with respect to the distribution of Skiroule snowmobiles in New England in violation of Section 7 of the Clayton Act?

6. Do snowmobiles fall within the Automobile Dealers' Day in Court Act, 15 U.S.C. § 1221 et seq.; and if they do, did the conduct of the defendants constitute a breach of "good faith" within the meaning of that Act?

I. Section 1 of the Sherman Act

Plaintiff alleges that defendants' acquisition of his dealership and other conduct constituted a contract, combination or conspiracy in violation of Section 1 of the Sherman Act. Section 1 of the Sherman Act, 15 U.S.C. § 1, provides in relevant part:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal: . . .

Movants are not without the purview of Section 1 of the Sherman Act because they were part of a single business entity at the time of the events complained of. Perma Life Mufflers, Inc. v. Intl. Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968). "The fact of common ownership cannot save them from any of the obligations that the law imposes on separate entities." Id. at 141-142, 88 S.Ct. at 1986. While a parent and subsidiary may unlawfully conspire, not every agreement between them is an unlawful conspiracy. Accordingly, it has been held that a manufacturer may freely exercise its discretion as to the parties with whom it will deal in the absence of some forbidden anticompetitive or monopolistic objective. See United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 63 L.Ed. 992 (1919).

Some objectives are illegal per se. These include price-fixing, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223, 60 S.Ct. 811, 84 L.Ed. 1129 (1940); refusal by a cartel to deal with non-members, Associated Press v. United States, 326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945); and certain tie-in agreements, Int'l Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947).

Where the facts do not fall within one of the per se categories, they are tested by the prohibition against unreasonable restraints of trade. Standard Oil Co. of N. J. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911). Restraints are unreasonable when accompanied by "a specific intent to accomplish a forbidden restraint." United States v. Columbia Steel Co., 334 U.S. 495, 522, 68 S.Ct. 1107, 1121, 92 L.Ed. 1533 (1948). Circumstantial evidence may and often must be adduced to glean intent. Courts are advised to focus on "the percentage of business controlled, the strength of the remaining competition and whether the action springs from business requirements or purpose to monopolize." Id. at 527, 68 S.Ct. at 1124. Certainly, unlawful consequences require the inference of a specific intent to monopolize. United States v. Griffith, 334 U.S. 100, 105, 68 S.Ct. 941, 945, 92 L.Ed. 1236 (1949). Quoting Mr. Justice Holmes, Griffith reasoned:

"Where acts are not sufficient in themselves to produce a result which the law seeks to prevent — for instance, the monopoly — but require further acts in addition to the mere forces of nature to bring that result to pass, an intent to bring it to pass is necessary in order to produce a dangerous probability that it will happen. . ."

There is nothing in either the complaint or the facts underlying it to suggest that defendant has committed a per se violation. Therefore, the issue is narrowed to "whether the action complained of springs from business requirements or purpose to monopolize." Columbia Steel Co., supra at 527, 68 S. Ct. at 1124.

It is settled law that a manufacturer may terminate a distributor without violation of the antitrust laws if the decision to terminate is based on a reasonable and legitimate business decision. Alpha Distributing Co. v. Jack Daniel Distillery, 454 F.2d 442 (9th Cir. 1972); Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir. 1960), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970); Beckman v. Walter Kidde & Co., 316 F.Supp. 1321 (E.D.N.Y.1970), aff'd 451 F.2d 593 (2d Cir. 1971), cert. denied, 408 U.S. 922, 92 S.Ct. 2488, 33 L.Ed.2d 333 (1972).

In Ricchetti v. Meister Brau, Inc., 431 F.2d 1211 (9th Cir. 1970), cert. denied, 401 U.S. 939, 91 S.Ct. 934, ...