Venzie Corp. v. U.S. Mineral Products Co., Inc.

• Decision Date: 27 August 1975
• Docket Number: No. 74-1995,74-1995
• Citation: 521 F.2d 1309
• Parties: 1975-2 Trade Cases 60,481 The VENZIE CORPORATION, and F. M. Venzie & Company, Inc., Appellants, v. UNITED STATES MINERAL PRODUCTS COMPANY, INC. and William Armstrong & Sons, Inc., Appellees.
• Court: U.S. Court of Appeals — Third Circuit

Page 1309

521 F.2d 1309

1975-2 Trade Cases 60,481

The VENZIE CORPORATION, and F. M. Venzie & Company, Inc., Appellants, v. UNITED STATES MINERAL PRODUCTS COMPANY, INC. and William

Armstrong & Sons, Inc., Appellees.

No. 74-1995.

United States Court of Appeals, Third Circuit.

Argued April 17, 1975.

Decided Aug. 27, 1975.

Peter Hearn, Murray S. Levin, Kenneth I. Levin, Philadelphia, Pa., for appellants; Pepper, Hamilton & Scheetz, Philadelphia, Pa., of counsel.

Benjamin M. Quigg, Jr., Stephen W. Armstrong, Philadelphia, Pa., for William Armstrong & Sons, Inc.; Morgan, Lewis & Bockius, Philadephia, Pa., of counsel.

Morris R. Brooke, Philadelphia, Pa., for United States Mineral Products Company, Inc.; Drinker, Biddle & Reath, Philadelphia, Pa., of counsel.

Before SEITZ, Chief Judge, and ROSENN and WEIS, Circuit Judges.

OPINION OF THE COURT

SEITZ, Chief Judge.

Plaintiffs, the Venzie Corporation and F. M. Venzie & Company, Inc. ¹, appeal from an order granting defendants' motion for judgment n. o. v. on their claim of a concerted refusal to deal. In their complaint, plaintiffs asserted that defendants United States Mineral Products Company, Inc. ("Mineral") and William Armstrong & Sons, Inc. ("Armstrong") had by agreement refused to sell a fireproofing material to plaintiffs in violation of Section 1 of the Sherman Act. Plaintiffs also attack an order of the district court directing a verdict for defendants on their claim that defendants had illegally tied the sale of the fireproofing product of Mineral to the purchase of the application services of Armstrong.

Plaintiffs and defendant Armstrong are competing fireproofing contractors in Philadelphia. In late 1969, plaintiffs were awarded contracts to fireproof two buildings in Philadelphia for which the general contractor was Turner Construction Company ("Turner"). Armstrong's bids on the projects were rejected. The contract for each job specified that asbestos spray fireproofing be used, and plaintiffs obtained permits from the City of Philadelphia conditioned upon their promise that there would be no visible emissions outside the building perimeters.

Shortly after plaintiffs began spraying on one of the projects, a civil suit was filed by the city Department of Health in March 1970 as a result of emissions of spray from the building. The suit was resolved by a stipulation that specified strict containment and clean-up procedures. Further violations of the city's Air Pollution Code through additional emissions led to the filing of a criminal suit against one of the plaintiffs by the Philadelphia District Attorney's office on June 23, 1970. After that plaintiff pleaded nolo contendere on July 21, 1970, to a charge of creating a public nuisance, an order was entered permitting further use of asbestos spray on the project only if the exterior walls of the building were first constructed. The order also required the substitution of a non-asbestos bearing spray as soon as such a product was approved for use.

Because Turner regarded erection of the exterior walls as unfeasible and because Turner rejected alternates to spray fireproofing such as gypsum hardboard or metal lath and plaster, plaintiffs began to search for a non-asbestos spray product to be used on both projects. The only asbestos-free spray product then on the market that met the fire retardation standards of the Philadelphia Building Code was Cafco DC/F. Developed by defendant Mineral in 1968-69, DC/F had been approved by Underwriters Laboratories, a national testing concern, for column, beam and deck fire retardation standards equivalent to those of the Philadelphia Code in March 1970.

Mineral sold its fireproofing only through licensees in order, according to Mineral, to insure high quality application. Although the company had given no exclusive territorial licenses and had previously licensed other Philadephia fireproofers, Armstrong was the sole Mineral licensee in Philadelphia in the summer of 1970. ² A predecessor of both plaintiffs had been a Mineral licensee, but neither plaintiff had been authorized to apply Mineral fireproofing since a dispute between Mineral and the predecessor company in 1963.

Throughout the month of July 1970, plaintiffs and Turner bombarded defendants with requests to purchase DC/F for plaintiffs' use. The first contact was a July 6, 1970, telephone call by Turner's director of purchasing to Mineral's general sales manager. The Turner representative was told that Mineral would not sell to Turner and that Mineral had a Philadelphia licensee, but was also advised to contact Mineral's Philadelphia sales representative. The conversation was followed by a letter from Mineral describing DC/F in some detail and giving the telephone number of the Philadelphia representative who might be contacted for further information. In subsequent inquiries addressed to it during the month of July, Mineral maintained the posture that it sold only to its licensed applicators and that inquiries should be addressed to Armstrong. Plaintiffs' proposal to purchase DC/F from a Mineral licensee in New Jersey was met with a warning that Mineral would terminate shipments to that company if it found that the fireproofing materials were not being used directly by the licensee.

Armstrong's position regarding sales to plaintiffs was unequivocal throughout plaintiffs' negotiations. Around July 20, both the president and chairman of the board of Armstrong told plaintiffs that Armstrong could not sell DC/F because its franchise forbade resale of the product. Armstrong, in accord with the trade practice, had never sold fireproofing materials.

Once it was clear that plaintiffs could not obtain DC/F, Turner approached Armstrong for a bid on both projects, because the contractor felt this was the only way to obtain the product. Turner accepted one bid prepared on July 30 which contained percentages for overhead and profit described by one of its officials as "unusually high" and which gave a margin of profit greater than plaintiffs would have received under their contracts. A similar bid was later accepted for the second project. Plaintiffs' contracts were terminated.

Once Armstrong had submitted a bid to Turner, Mineral's Philadelphia representative visited the city on August 3, 11 and 18 for the purpose of obtaining final city approval for DC/F. Formal approval was granted on August 18, 1970, after it was determined that DC/F was suitable for the lightweight concrete Turner was using.

Plaintiffs filed this suit for losses incurred as a result of the termination of their contracts because of their inability to purchase DC/F. They alleged, Inter alia, that defendants had violated Section 1 of the Sherman Act by: (1) engaging in a concerted refusal to sell DC/F to plaintiffs and (2) illegally tying the purchase of Armstrong's services to the purchase of Mineral's fireproofing. ³

At the conclusion of plaintiffs' evidence, the district judge directed a verdict in favor of defendants on the tying claim. At the close of all the evidence, the court denied defendants' motion for a directed verdict on the refusal to deal claim and presented the case to the jury. In answer to special interrogatories the jury found (1) that defendants had engaged in a concerted refusal to deal with plaintiffs and (2) that plaintiffs had sustained combined damages of $112,134. The district court, however, entered judgment for defendants n. o. v. on the ground that "the reasonable inferences which the jury could draw are that there was no concerted refusal to deal . . . ." Even if the defendants had acted in concert, the court held there was no Sherman Act violation because "they were not motivated by the accomplishment of an anti-competitive objective nor was there any unreasonable restraint of trade." 382 F.Supp. 939, 955 (E.D.Pa.1974).

Our function is to determine if the district court erred in granting judgment n. o. v. In this task, we are required, as was the district court, to view the evidence and all reasonable inferences therefrom in the light most favorable to plaintiffs. Plaintiffs urge us to treat the directed verdict on the tying claim only if we sustain the judgment n. o. v. on the charge of a concerted refusal to deal.

Evidence of Concerted Activity of Defendants

Plaintiffs urge that their inability to purchase Cafco was the product of two agreements between defendants: (1) a general restriction that Armstrong could not sell fireproofing which it purchased from Mineral under its franchise contract except on an applied basis; and (2) a more recent agreement aimed at plaintiffs and supplementing the prohibition on resale under which Mineral also agreed not to sell to plaintiffs for the purpose of forcing plaintiffs from the Turner jobs so that defendant Armstrong could replace them.

With regard to these claims, although plaintiffs were not required to demonstrate the formation of any express agreement and although they could rely on an inference of the existence of an agreement from circumstantial evidence, they still had the burden of adducing sufficient evidence from which the jury could conclude, on the basis of reasonable inferences and not mere speculation, that defendants' refusals to deal with them were the product of concerted action between them. Assuming for the moment that Mineral had placed resale restrictions on Armstrong, we shall first treat the sufficiency of plaintiffs' evidence to establish that any resale limitation was supplemented by a concerted refusal to deal inspired by the anti-competitive motive of substituting Armstrong for plaintiffs on the Philadelphia projects.

A. Agreement Not to Sell to Plaintiffs

Plaintiffs cite a number of items of evidence from which they argue the jury could reasonably have inferred the existence of a conspiracy between defendants to withhold DC/F from them in order that Armstrong might be substituted on the Turner jobs. We shall treat the items...