William Inglis & Sons Baking Co. v. ITT Continental Baking Co., Inc.

• Citation: 668 F.2d 1014
• Decision Date: 10 February 1982
• Docket Number: Nos. 79-4207,78-3604,s. 79-4207
• Parties: 1981-2 Trade Cases 64,229, 1982-1 Trade Cases 64,545, 1982-1 Trade Cases 64,546 WILLIAM INGLIS & SONS BAKING CO., et al., Plaintiffs-Appellees, v. ITT CONTINENTAL BAKING COMPANY, INC., et al., Defendants-Appellants. WILLIAM INGLIS & SONS BAKING CO., et al., Plaintiffs-Appellants, v. ITT CONTINENTAL BAKING COMPANY, INC., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1014

668 F.2d 1014

1981-2 Trade Cases 64,229, 1982-1 Trade Cases 64,545,

1982-1 Trade Cases 64,546

WILLIAM INGLIS & SONS BAKING CO., et al., Plaintiffs-Appellees, v. ITT CONTINENTAL BAKING COMPANY, INC., et al., Defendants-Appellants.

WILLIAM INGLIS & SONS BAKING CO., et al., Plaintiffs-Appellants, v. ITT CONTINENTAL BAKING COMPANY, INC., Defendant-Appellee.

Nos. 79-4207, 78-3604.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 10, 1980.

Decided Aug. 7, 1981.

As Amended on Denial of Rehearing and Rehearing En Banc Feb. 10, 1982.

John H. Schafer, Covington & Burling, Washington, D. C., for defendants-appellants.

Michael N. Khourie, Broad, Khourie & Schulz, San Francisco, Cal., for plaintiffs-appellees.

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

Before BROWNING, PECK ^* and SNEED, Circuit Judges.

SNEED, Circuit Judge:

William Inglis & Sons Baking Co. (Inglis) brought this private antitrust suit to recover treble damages against ITT Continental Baking Co. (Continental), American Bakeries Co. (American), and Campbell-Taggart, Inc., alleging violations of sections 1 and 2 of the Continental then moved for judgment notwithstanding the verdict (JNOV) or, in the alternative, a new trial on all claims. The district court granted the motions for JNOV and, in the alternative, a new trial on the federal claims but refused to grant JNOV for Continental on the state claims. Instead, a new trial was ordered. William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 461 F.Supp. 410 (N.D.Cal.1978). Inglis now appeals the district court's entry of JNOV and alternative order for a new trial on the federal claims, and Continental appeals the court's refusal to enter JNOV in its favor on the state claims, pursuant to 28 U.S.C. § 1292(b). We affirm in part, reverse in part, and remand this case for a new trial.

Sherman Act, 15 U.S.C. §§ 1, 2, section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a), and the California Unfair Practices Act, Cal.Bus. & Prof.Code §§ 17000-17101. Inglis also charged that Continental had conspired with its parent corporation, International Telephone & Telegraph (ITT), and others in violation of sections 1 and 2 of the Sherman Act. Both Continental and American filed counterclaims against Inglis also alleging antitrust violations, although Continental dropped its counterclaim at trial. Before trial Campbell-Taggart settled with Inglis, and the district court granted summary judgment for Continental with respect to the alleged "vertical" conspiracy between Continental, ITT, and others. Later, Inglis voluntarily dropped its horizontal conspiracy claims under section 1 against the named defendants. Following a one month trial in 1978, the jury returned a verdict against Continental on all remaining claims and awarded damages of $5,048,000. The jury found that neither American nor Inglis were liable on the claims they filed against each other.

I. STATEMENT OF THE CASE

A. The Theory of Plaintiff's Actions

Inglis was a family-owned wholesale bakery with production facilities located in Stockton, California. It manufactured and distributed bread and rolls in northern California. Continental is one of the nation's largest wholesale bakeries, and was a competitor of Inglis in the northern California market, with production facilities in San Francisco, Oakland, and Sacramento. The primary products involved in this case were the one pound and one and one-half pound loaves of white pan bread. During the period covered by Inglis' complaint, both Continental and Inglis sold their bread under a "private" label and an "advertised" label. Private label bread is manufactured by the wholesaler on behalf of a particular retail customer and marketed under a label exclusively held by that customer. Advertised label bread generally is a national brand name available to all retail purchasers. Continental's advertised bread bears the "Wonder" label, while Inglis marketed "Sunbeam" bread. Labeling aside, the principal difference between private label and advertised bread was one of price. Wholesale bakeries typically sold private label bread at a lower price than advertised brands and, because the products were essentially the same, at a lower profit. Both types of bread generally were manufactured at the same production facilities and both could be found on the shelves of most large retailers.

Inglis' complaint, which was filed in 1971 and supplemented in 1977, was founded on charges that Continental sought to eliminate competition in the northern California market for wholesale bread by charging discriminatory and below-cost prices for its private label bread. Inglis claims that it was the principal victim of this predatory scheme, suffering losses since 1967 and eventually going out of business in April 1976, nearly five years after it filed its initial complaint. The theory on which Inglis structured its case was that the growth of private label bread, which began in northern California in 1967 or 1968, began to weaken Continental's market for Wonder bread. In response to this challenge Continental also began selling private label bread, but the price gap between private label and Wonder bread persisted. Inglis argues that Continental then decided to pursue a strategy of predatory pricing in its sales of private label bread, with the intent of eliminating independent wholesalers like Inglis who were financially less capable of withstanding a price war. The ultimate goal, Inglis asserts, was to acquire a large

share of the private label market and then to use the enhanced market power to raise private label prices, which would diminish the competitive disadvantage of Wonder bread. Moreover, Inglis contends, the acquisition of private label accounts would enable Continental to "leverage" more shelf space for Wonder bread from those retailers who also purchased Continental's private label bread.

B. The Evidence Summarized

To support its theory, Inglis introduced the following evidence. ¹ First, Inglis examined the movement in Continental's prices during the complaint period, focusing on the one pound loaves of bread. In September 1970 Continental reduced the price of its private label bread from 19 to 18 cents per loaf and maintained that price for nearly two years. In July 1972 Continental further reduced its price to 17.2 cents and maintained that price through the summer of 1973. Thereafter Continental gradually began to raise the price, allegedly because it then knew that Inglis was in its death throes as a competitor. ² Second, Inglis established that Continental suffered substantial losses from its northern california bakeries from 1971 through 1974, the period during which Continental's private label prices were at their lowest. Inglis also introduced expert testimony, based on a study of prices during brief periods in 1972 and 1973, tending to show that Continental's private label prices were below its average variable cost of production. Third, Inglis showed that Continental actively made competing offers to private label accounts held by Inglis. Although Inglis actually lost only one account to Continental, it nevertheless was forced to respond with lower prices of its own and suffer the resulting loss of revenue from sales. Finally, Inglis introduced documentary evidence designed to prove Continental's intent to drive Inglis from the market. This evidence principally consisted of a report prepared by independent consultants identifying strategies Continental might adopt to combat private label competition. One alternative involved maintaining prices "to hasten wholesaler exit." Inglis also introduced reports by Continental salesmen targeting Inglis private label accounts for enhanced competitive efforts.

Continental's explanation of events during the complaint period, of course, differed sharply from that of Inglis. First, Continental emphasized the intensely competitive nature of the wholesale bread market in northern California and its own lack of market power. Campbell-Taggart held the largest share of the market and, although some of the evidence is ambiguous, apparently initiated price reductions that other competitors, including Continental, were forced to follow. Second, during the complaint period the market was affected by the growth of so-called "captive" bakeries. Retail stores such as Safeway established their own bakeries, thereby reducing the demand for wholesale bread products. One result was that all of the wholesale bakeries experienced excess capacity during the relevant period. As striking evidence of this, Continental proved that during an eleven-week strike in December 1972 and January 1973, which closed the bakeries operated by Continental and Campbell-Taggart, American and Inglis were able to supply the entire market with their existing capacity. In addition to creating excess capacity, the captive bakeries also exerted pressure on other retailers to provide price-competitive private label products, pressure to which Continental and other wholesalers responded.

Finally, Continental emphasized that all of the bakeries were subject to federal price controls from the summer of 1971 until April 1974. Within this period the federal government also imposed a temporary price freeze during the summer months of 1973. According to Continental, the price controls contributed substantially to its inability to raise prices despite increasing costs during the period in which private label prices were at their lowest levels. Continental argues that the price increases which occurred in late 1973 and 1974 resulted not from Continental's anticipation of Inglis' demise, but from the expiration of government price constraints. ³

From the evidence presented at trial, this much is plain: The price competition among wholesalers in northern California, all selling substantially...