Wedgewood Inv. Corp. v. International Harvester Co.

• Decision Date: 10 May 1979
• Docket Number: CA-CIV,No. 1,1
• Citation: 613 P.2d 620,126 Ariz. 157
• Parties: , 1979-1 Trade Cases P 62,643 WEDGEWOOD INVESTMENT CORP., an Arizona Corporation, dba Nassers Fiat- International, Appellant, v. INTERNATIONAL HARVESTER COMPANY, a Delaware Corporation, Appellee. 3692.
• Court: Arizona Court of Appeals

Page 620

613 P.2d 620

126 Ariz. 157, 1979-1 Trade Cases P 62,643

WEDGEWOOD INVESTMENT CORP., an Arizona Corporation, dba Nassers Fiat- International, Appellant, v. INTERNATIONAL HARVESTER COMPANY, a Delaware Corporation, Appellee.

No. 1 CA-CIV 3692.

Court of Appeals of Arizona, Division 1, Department B.

May 10, 1979.

Rehearing Denied Jan. 4, 1980.

Review Denied Jan. 22, 1980.

Neville, Lalliss & Tanner, P. C. by Robert T. Neville, Phoenix, for appellant.

Jennings, Strouss & Salmon by John S. Hobbs, Leo R. Beus and Stephen C. Earl, Phoenix, for appellee.

OPINION

HAIRE, Judge.

The issues raised on this appeal from a summary judgment require that this Court determine whether the performance of an agreement between the appellant-dealer (referred to herein as "Nassers") and the appellee-manufacturer (International Harvester) would be illegal as a per se antitrust violation, and, if so, whether that illegality would preclude the enforcement of Nassers' claim for damage for the alleged breach thereof by International Harvester. The trial court decided both of these issues in favor of International Harvester.

Reviewing first those facts which, for the purpose of the summary judgment proceeding, were not in dispute, we find that Nassers was, at all relevant times, an authorized International Harvester dealer in both new vehicles and parts. Within seven blocks of its dealership in Mesa, Arizona, was another dealer, Central Truck, which was also an authorized International Harvester parts dealer. These two businesses had coexisted in direct competition in the sale of International Harvester parts from the time Nassers first acquired its dealership in 1969.

On several occasions prior to the events leading to this action Nassers had attempted to have International Harvester do something about the price-cutting activities of Central Truck. Central Truck sold International Harvester parts at a lesser price than Nassers. Nassers either would not, or could not, due to its overhead, sell at the same price as Central Truck, although both entities purchased the parts from International Harvester at the same price.

In September of 1973 International Harvester announced that its own branch store in Phoenix, Arizona would no longer stock parts for, sell or service the light line of vehicles it manufactured. International Harvester representatives approached Nassers with a request that Nassers purchase the parts in stock for such vehicles from the discontinued branch store. This proposed purchase of the parts by Nassers was discussed at a meeting in October of 1973. Also, Nassers' plans for improving and expanding its facilities were discussed. An oral agreement was reached that, if Nassers would expand and improve its facility considerably beyond the improvements it had been contemplating, International Harvester would, in turn, exercise a 30 day cancellation clause in its franchise agreement with Central Truck, which was the only other International Harvester parts distributor in Mesa.

In reliance upon this oral agreement, later acknowledged in letters between Nassers and International Harvester, and in expectation of greatly increased parts sales, Nassers set about improving its facility. Additional acreage was purchased and new buildings were constructed. Upon the completion of the new facilities International Harvester sent Central Truck a letter cancelling its parts franchise effective November 21, 1974.

On November 1, 1974, the attorney for Central Truck wrote to International Harvester objecting to the cancellation and threatening an antitrust action if the cancellation was not rescinded. After consulting with its counsel, International Harvester rescinded the cancellation of Central Truck's parts franchise. After the rescission, counsel for Nassers threatened legal action to recover the expenditures made in improving its facility and for punitive damages. In an inter-office memo of December 5, 1974, International Harvester acknowledged its dilemma and decided that it was in a stronger position to defend the Nassers' action than that of Central Truck, and therefore adhered to its rescission of the cancellation. This suit followed.

Nassers, by its complaint, alleged the terms of the agreement and International Harvester's breach. On this basis it sought recovery for the amount spent in expanding its business. Nassers further alleged that the agreement was procured by fraud on the part of International Harvester (claiming that International Harvester never intended to keep its bargain) and sought punitive damages in the amount of $10,000,000. International Harvester answered denying the allegations of fraud and asserted affirmatively that its agreement with Nassers was illegal because it violated the antitrust laws and that, in light of its illegality, no action predicated upon that agreement could be entertained by the court.

After numerous depositions, International Harvester moved for summary judgment pursuant to Rule 56 of the Arizona Rules of Civil Procedure, attaching an affidavit of a local expert in the field of antitrust litigation who, after listing the purportedly established facts, stated that, in the writer's opinion, the agreement between International Harvester and Nassers was a per se violation ¹ of § 1 of the Sherman Antitrust Act. ²

Nassers replied by claiming that the agreement did not violate the antitrust laws and that, even if it did, the issue of illegality would have to be determined by the "rule of reason". ³ Therefore, Nassers' argument continues, since the application of the "rule of reason" would require that numerous factual determinations be made by a jury, summary judgment would not be appropriate. Nassers filed an affidavit in opposition to the motion for summary judgment alleging that, contrary to International Harvester's assertions, Nassers' rationale for entering into the agreement was not to eliminate its price-cutting competition. The affidavit did concede, however, that James Nasser, the affiant and principal of the appellant, "had not been pleased with Central Truck's pricing practices in the Mesa area. . . ." The affidavit also affirmatively asserted that pricing had not been discussed in the negotiations between Nassers and International Harvester during September and October of 1973; that the discussions which culminated in the agreement by Nassers to upgrade its facilities had resulted from an approach by International Harvester representatives; that the International Harvester representatives were told that Nassers would not upgrade its facilities unless it could have an exclusive dealership in the Mesa area; and that accordingly International Harvester representatives had agreed to cancel Central Truck at the completion of the upgrading of Nassers' facilities.

International Harvester asserts that Nassers' statement that price-cutting was not the reason for requesting the cancellation of Central Truck is in direct conflict with the sworn testimony of James Nasser and other Nasser principals. It further argues that the depositions show that the price-cutting was in fact the sole reason for Nassers' request that the parts franchise agreement with Central Truck be cancelled.

The statutory provisions relevant to our consideration of the alleged antitrust violations are § 1 of the Sherman Act and its counterpart in Arizona, A.R.S. § 44-1402. These provide 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."

15 U.S.C. § 1

"A contract, combination, or conspiracy between two or more persons in restraint of, or to monopolize, trade or commerce, any part of which is within the state, is unlawful."

A.R.S. § 44-1402

The Arizona legislature clearly intended to strive for uniformity between federal and state antitrust laws. A.R.S. § 44-1412 provides in part:

"It is the intent of the legislature that in construing this article, the courts may use as a guide interpretations given by the federal courts to comparable federal antitrust statutes."

Inasmuch as the major part of case law in the antitrust area has been developed in the federal courts, our primary focus will be upon opinions from those courts.

The major issue in this case is whether that part of the parties' agreement calling for the cancellation of Central Truck's franchise constituted a "per se" violation of the antitrust laws. Before considering this issue we note that it is clearly established that neither a federal nor a state court will enforce a contract that requires conduct made unlawful by the Sherman Act. See, e. g., Continental Wall Paper Co. v. Louis Voight & Sons Co., 212 U.S. 227, 29 S.Ct. 280, 53 L.Ed. 486 (1909); Associated Press v. Taft-Ingalls Corp., 340 F.2d 753 (6th Cir.), cert. denied 382 U.S. 820, 86 S.Ct. 47, 15 L.Ed.2d 66 (1965); Whipple v. Shamrock Foods Co., 26 Ariz.App. 437, 549 P.2d 217 (1976); Harold Butler Enterprises # 97, Inc. v. Vanlandingham, 264 Or. 414, 505 P.2d 1149 (1973); but see Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959).

International Harvester recognizes that the summary judgment entered by the trial court can be sustained only if the undisputed facts show that its agreement with Nassers was a per se violation of the antitrust laws, conclusively presumed to be unreasonable and therefore illegal without the necessity of an evidentiary inquiry into the precise harm caused or the business excuse for its use. The consequence of a determination that an agreement falls within one of the per se categories of antitrust violation is that it concludes the judicial inquiry. There are no defenses. Regardless of how reasonable the parties' behavior might have been in the particular case, the rule of reason is inapplicable and mitigating circumstances are not taken into account.

As an initial basis for...