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Coleman Motor Co. v. Chrysler Corp.

November 14, 1975

COLEMAN MOTOR CO.
v.
CHRYSLER CORPORATION AND CHRYSLER MOTORS CORPORATION, APPELLANTS



Appeal from the United States District Court for the Western District of Pennsylvania; D.C. Civil Action No. 68-819.

Adams, Rosenn and Weis, Circuit Judges.

Author: Rosenn

Opinion OF THE COURT

ROSENN, Circuit Judge

This appeal questions the extent to which, without violating sections one and two of the Sherman Act, a major manufacturer of motor vehicles may subsidize its partially and wholly owned dealers (factory dealers) which compete at the retail level with independent dealers.

Plaintiff, a former independent Dodge dealership in Allegheny County, Pennsylvania, brought a private antitrust action under section four of the Clayton Act against defendants Chrysler Corporation and Chrysler Motors Corporation (collectively Chrysler) seeking treble damages resulting from alleged violations of the Sherman Act. 15 U.S.C. ยงยง 1, 2, 15 (1970). Plaintiff charged that Chrysler made large capital and other contributions to its partially or wholly owned Dodge dealerships (factory dealers) to offset losses incurred through extravagant expenditures for advertising, rent, and sales personnel; that Chrylser discriminated between its factory and independent dealers with respect to delivery of new model cars for display, special bonuses and rebates, special tool allowances, and bookkeeping services provided by Chrysler; that Chrysler engaged in unfair competition and deceitful advertising practices; and that Chrylser refused to permit independent dealerships to change locations. Plaintiff alleged that Chrysler committed and conspired to commit the above acts with the intent to destroy independent Dodge dealerships and that, as a result, plaintiff was compelled to surrender its franchise and cease operations.

After trial in the Western District of Pennsylvania, the jury returned the following verdict in response to special interrogatories:

1. Did the defendants engage in any combination or conspiracy in effect between July 14, 1964 and July 14, 1969 which unreasonably restrained interstate trade or commerce in Dodge vehicles at the retail level in Allegheny County?

ANSWER "Yes" or "No": Yes

2. Did the defendants, during the period July 14, 1964 to July 14, 1969 attempt to monopolize interstate trade or commerce in Dodge vehicles at the retail level in Allegheny County?

ANSWER "Yes" or "No": Yes

3. If your answer to Question 1 or 2, or either of them, is "Yes", did the plaintiff sustain any damages by reason of any such violation of the antitrust laws?

ANSWER "Yes" or "No": Yes

4. If so, state the amount: $300,000.00

The district court entered judgment awarding plaintiff treble damages in the amount of $900,000.

Chrysler timely moved for judgment notwithstanding the verdict or, in the alternative, for a new trial. It asserted, inter alia, that the record contained insufficient evidence to sustain the jury's verdict; that certain evidence, including the verdict in a similar case, should have been excluded; and that the jury was improperly instructed. The district court denied Chrysler's motions. 376 F. Supp. 546 (W.D. Pa. 1974). Chrysler appealed; we vacate the judgment of the district court and remand for a new trial.

I. FACTS

The record in this case consists of a lengthy stipulation, numerous exhibits, and oral testimony. Although later we shall refer to the evidence in more detail, we necessarily must set forth certain background material at the outset.

Prior to 1954, Chrysler followed the conventional practice of marketing its automobiles through independent franchised dealers for resale to the public. In 1954, Chrysler began to franchise dealers as well under the Dealer Enterprise (D.E.) Plan. Under this plan, Chrysler supplied up to 75 precent of the capital needed to finance a new dealership. The plan, similar to those previously adopted by General Motors and Ford, provides that the 25 percent owner becomes president and general manager of the dealership and that he ultimately may purchase Chrysler's entire interest in the dealership out of his share of profits. Until such time, however, Chrysler retains majority control at the shareholder and board of directors levels.

Plaintiff, a corporation with its principal place of business in Wilkinsburg, Pennsylvania, became a franchised Dodge dealership in 1955. Apart from its obligations under the franchise agreement, plaintiff operated independently of Chrysler. Plaintiff purchased Dodge automobiles and trucks from Chrysler under a "Direct Dealer Agreement" which, although terminable by plaintiff on 30 days' notice, could be terminated by Chrysler only upon breach by plaintiff. Under this agreement, plaintiff agreed to sell at retail a certain quantity of automobiles within its sales area. This quantity, known as the "minimum sales responsibility," was calculated annually and reflected the percentage of new car registrations in plaintiff's sales area attributable to Dodge automobiles. Plaintiff stipulated that Chrysler's method of calculating the minimum sales responsibility was fair and reasonable.

Despite adoption of the D.E. Plan, Chrysler's national market penetration had dropped by 1961 from approximately 20 percent to 10.8 percent. In response to this sales decline, Chrysler in 1961 decided to encourage new franchises by establishing wholly owned dealerships operated by individuals unable to furnish even 25 percent of the necessary capital. Chrysler provided all of the initial capital for these so-called "contractual" dealerships. The plan required the individual participants to place any available funds in an escrow account and add a portion of profits until the fund became sufficient to purchase 25 percent of Chrysler's interest. In 1964, Chrysler offered to lend the individual up to one-half the funds necessary to enable him to acquire the 25 percent and thereby become a D.E. dealer.*fn1

Chrysler primarily supported factory dealerships in the following manner. First, Chrysler provided the initial capital infusion in the form of stock purchases and loans, thereby eliminating costs of capital for these dealerships. Second, Chrysler provided significant operating loss subsidies,*fn2 thereby enabling factory dealerships, inter alia, to operate out of larger, more attractive showrooms*fn3 and to spend substantially more money on advertising than did Coleman.*fn4 Third, Chrysler provided factory dealerships with free services of key managerial employees at various times. The plaintiff, however, does not claim the existence of a significant difference in retail prices to the public between factory dealers and Coleman.

The total number of Dodge dealerships increased nationally from 2559 at the end of 1961 to 3138 in 1972, of which slightly more than 3000 were independently financed. The number of new independently financed Dodge dealerships ranged from 101 to 525 annually while the number of new Dodge factory dealerships never exceeded 83 in any year. The first factory dealership in Allegheny County, Boulevard Dodge, opened in 1961. The number of factory dealerships grew to six by 1966 when the Monroeville Dodge factory dealership was established. By 1968, however, the number of factory dealerships had suffered a decline to four. The number of independent Dodge dealers decreased from fifteen in 1961 to eleven in 1968. The aggregate number of independent Dodge dealers, both factory and independent, remained relatively constant between 1962 and 1968. After the factory dealer program was instituted, Chrysler's national market share increased to 16.25 percent in 1968. Dodge sales climbed from 3.43 percent of the national market in 1962 to 6.18 percent in 1968.

In Allegheny County, overall Chrysler sales increased from 11.28 percent of the new car market in 1962 to 18.01 percent in 1968. During the same period, local General Motors, Ford, and American Motors sales experienced a declining trend. The following table shows the respective shares of the Allegheny County new car market held by the major automobile manufacturers during the pertinent period. Overall Dodge sales in Allegheny County rose steadily from 3117 in 1962 to 6033 in 1968.

NEW PASSENGER AUTOMOBILE REGISTRATIONS

Gen. Total Only

Year Motors Ford Chrysler Dodge A.M.C. Other

1962 53. 01 23.39 11.28 4.94 6.71 5.61

1963 51.42 22.07 13.96 6.47 6.84 5.71

1964 49.49 24.22 14.25 6.63 5.88 6.16

1965 51.86 22.15 15.26 6.65 ...


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