Yentsch v. Texaco, Inc.

• Decision Date: 12 May 1980
• Docket Number: 772,D,Nos. 698,s. 698
• Parties: 1980-2 Trade Cases 63,349 David A. YENTSCH, Plaintiff-Appellee-Cross-Appellant, v. TEXACO, INC., Defendant-Appellant-Cross-Appellee. ockets 79-7735, 79-7746.
• Court: U.S. Court of Appeals — Second Circuit

Page 46

630 F.2d 46

1980-2 Trade Cases 63,349

David A. YENTSCH, Plaintiff-Appellee-Cross-Appellant, v. TEXACO, INC., Defendant-Appellant-Cross-Appellee.

Nos. 698, 772, Dockets 79-7735, 79-7746.

United States Court of Appeals Second Circuit.

Argued Feb. 11, 1980.

Decided May 12, 1980.

Alan Neigher, Bridgeport, Conn., for plaintiff-appellee-cross-appellant.

G. Kenneth Handley, White Plains, N.Y. (Milton J. Schubin, Randolph S. Sherman, Ira S. Sacks, New York City, Kaye, Scholer, Fierman, Hays & Handler, New York City, of counsel), for defendant-appellant-cross-appellee.

Before OAKES and VAN GRAAFEILAND, Circuit Judges, and NICKERSON, District Judge. ^*

OAKES, Circuit Judge:

This action, an anachronism in today's OPEC-pricing world, was brought against Texaco, Inc. by a former Connecticut service station dealer David Yentsch. Following a six-day trial in the United States District Court for the District of Connecticut, Judge Thomas F. Murphy submitted three issues to the jury: (1) whether Texaco The jury returned a single general verdict for $73,500 in favor of Yentsch, and the district court subsequently granted appellee's oral request for treble damages, pursuant to 15 U.S.C. § 15. In response to a Texaco motion, however, the court later vacated its trebling order since it had no way of knowing whether the jury found for Yentsch on antitrust or non-antitrust grounds, a situation which could have been avoided with the use of a special verdict, Fed.R.Civ.P. 49.

coerced its Connecticut dealers, including Yentsch, to participate in an illegal maximum resale price maintenance scheme, in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1; (2) whether Texaco broke its contract with Yentsch by terminating his lease and dealer agreement; and (3) whether Texaco illegally tied S & H Green Stamps, Coca-Cola, and glassware products to the lease and dealer agreement, also in violation of 15 U.S.C. § 1.

Texaco now appeals from denials by the district court of its motions for judgment notwithstanding the jury verdict and for a new trial. Yentsch cross-appeals from the district court's decision to vacate its original treble damages order. We reverse the judgment and remand for a new trial on the price-fixing claim.

FACTS

David Yentsch leased and operated a Texaco service station in North Haven, Connecticut, from January 1, 1970 through December 31, 1971, when he was terminated by Texaco. ¹ He signed a one-year lease and dealer agreement with Texaco in September, 1969, for the year 1970, and both parties renewed for 1971. The agreement could be terminated at the end of the annual lease term by either party upon thirty days' written notice.

During negotiations prior to the agreement, Texaco told Yentsch that it was dissatisfied with the prior dealer's sales volume and thought the station could increase sales if appellee remained open twenty-four hours a day, gave S & H Green Stamps to customers, participated in other Texaco promotions, and kept the station clean. Yentsch agreed, apparently on a trial basis, to offer Green Stamps and to maintain round-the-clock service.

Appellee stayed open twenty-four hours a day throughout 1970, except for Thanksgiving and Christmas, even though he thought it unprofitable to do so. Richard Ross, a Texaco sales supervisor from 1961 to 1968, testified that during 1967 and 1968, his district manager, Arthur Davis, told him "daily" to warn dealers that, unless they stayed open twenty-four hours each day, they would be terminated. Ross recounted that fifteen to twenty dealers were terminated by him on Davis's orders, because of their failure to maintain round-the-clock service. According to Ross, Davis himself threatened a dealer, in Ross's presence, with termination if he refused to stay open twenty-four hours.

Although Yentsch believed that increased gasoline sales resulting from offering Green Stamps did not cover their cost, he nevertheless distributed them during most of his two-year tenure. Texaco representatives threatened lease termination several times when he suggested dropping them. Donald Breitenstein, Texaco's sales representative for the North Haven area and Yentsch's representative from early 1970 through the spring of 1971, testified that he told his sales supervisor, Richard Hammer, about recalcitrant dealers who were unhappy with trading stamps, and Hammer "said that if they didn't do it, that, you know, Texaco could get someone who would do it and they wouldn't be there when lease time came around again." Ross noted that Texaco generally told dealers during the late 1960s that a condition of keeping their stations would be their giving away trading stamps.

Texaco also urged appellee to participate in glassware and Coca-Cola promotional programs, which he grudgingly did after threats that his lease would otherwise not be renewed. Breitenstein testified that Texaco kept forms indicating whether a dealer did or did not participate in the two promotions. Hammer told him that he wanted all retailers to join the promotions.

Another major area of contention between Yentsch and Texaco was pricing policy. Texaco offered a "temporary voluntary allowance" (TVA) to its dealers during times of price instability-popularly known as "price wars"-reducing its wholesale dealer tankwagon prices by, for example, 2.1 cents per gallon. The dealer was expected to make a further .9 cent or 30 percent reduction, resulting in an overall pump price decrease of three cents. Yentsch, mistakenly under the impression that Texaco would cover the full three cent reduction, followed this program for a short time in early 1970, until he learned that he, too, was contributing to the lower price. He testified that even then, "I left (the price at that level) for a while, and I realized I didn't have enough of a margin on the gasoline to be dropping a cent, so I went back up one cent to meet the two cents that they were giving me." He later decided generally to reduce his retail price only by the amount of the Texaco allowance, although he noted that "(a)t times I did" lower the "price an additional 30 percent" over the allowance late in 1970.

Texaco, however, wanted Yentsch to contribute his own price reductions as part of its TVA program. It thought that Yentsch priced his gasoline too high for the market, at least one or two cents higher than his competitors. Yentsch testified that sales supervisor Hammer told appellee at least ten times during 1971: "(E)ither drop the price or we are going to get a replacement for you." When asked during direct examination whether he complied with Hammer's threats, appellee answered "(n)ot every time" and "(v)ery seldom." He testified that he recalled dropping his price the extra 30 percent only once in 1971, during the summer. Yentsch stated in a deposition that Hammer "convinced me to participate in the pricing and it would increase my volume so much that I would be making more money. I tried it for a couple of weeks and it didn't work out."

Breitenstein testified that "Mr. Hammer would want me to tell the dealers to lower their prices so they would pump more gallonage," and that Hammer told him to tell dealers "(t)hat if their gallonage wasn't up to what Texaco wanted it to, they could find somebody else to run the station that could get it up there." Breitenstein had monthly discussions on this topic with Hammer and had previously talked on the same topic every six weeks or so with Hammer's predecessor, Henry Milton, Texaco's sales supervisor from 1969 to 1970.

After reviewing projections estimating a 10,000 gallon decrease in sales for Breitenstein's area during the month of May, Hammer handwrote him a memorandum on April 3, 1971, stating:

I expect you to do everything possible to have this in the Black by 5-31-71. Prices, Coca-Rama, and hours of operation must be utilized. I told H. C. Milton today Yentsch is off 24 hours and he and I agree. Get a replacement retailer. We are both upset that you didn't come to us for help before he went off. I want an S-202 (termination form) drawn up on Yentsch, bring it to me this week, and then discuss with me.

Ross testified that district manager Davis would "ride the area" and survey dealer prices, in order to determine whether dealers were reducing prices according to the TVA. He also commented that "the dealers were really informed (during training) that in order to be very competitive they had to follow the tank wagon pricing."

Although Texaco renewed Yentsch's lease and dealer agreement for 1971, it grew increasingly dissatisfied with him. ² Finally,

in late November, 1971, it informed him that the lease would be terminated as of December 31, 1971. Yentsch signed a "mutual cancellation" agreement with Texaco, see note 1 supra, and later rejected its offer of a month-to-month extension of his lease and dealer agreement.

DISCUSSION

A. Price-Fixing Claim

Vertical resale price maintenance is, so far as still appears, per se illegal under § 1 of the Sherman Act. California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 105, 100 S.Ct. 937, 942, 63 L.Ed.2d 233 (1980); Albrecht v. Herald Co., 390 U.S. 145, 151, 88 S.Ct. 869, 872, 19 L.Ed.2d 998 (1968). ³ The Supreme Court originally made this position clear in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911), when it proscribed written contracts between the manufacturer and dealers fixing retail prices. Id. at 407-08, 31 S.Ct. at 384-85. Eight years later, the Court, in United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919), backtracked to some extent:

In the absence of any purpose to create or maintain a monopoly, the (Sherman) (A)ct does not restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. And, of course, he...