APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 74-3299)
Before Aldisert and Sloviter, Circuit Judges, and Rambo, District Judge.*fn*
The major question for decision in this appeal by unsuccessful plaintiffs in an anti-trust action is whether they established a prima facie case of a "contract, combination, ... or conspiracy, in restraint of trade ..." in violation of § 1 of the Sherman Act, 15 U.S.C. § 1. Sweeney, a wholesale and retail distributor of Texaco fuels, and two of its wholesale customers attempted to prove that Texaco unlawfully conspired with other fuel distributors and retailers to fix the retail price of Texaco motor fuel. Determining that appellants had failed to introduce evidence from which a jury could infer the existence of a conspiracy, the district court directed a verdict in favor of Texaco.
The district court also directed a verdict against appellants on their claims that Texaco violated § 2 of the Sherman Act, 15 U.S.C. § 2, and § 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a). In addition, the district court dismissed damage claims against Texaco raised by Mission Gas Oil Company and Petroleum Products Company. The court granted Texaco's prayer for injunctive and declaratory relief against Sweeney concerning Sweeney's practice of misrepresenting non-Texaco fuel as Texaco fuel. Sweeney, Mission, and Petroleum Products appeal these adverse rulings. We conclude that the district court did not err and, therefore, we affirm.
We need recite only those facts essential to this appeal because of the extensive elaboration already undertaken by the district court. Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 478 F. Supp. 243, 249-51 (E.D.Pa.1979). Appellant Edward J. Sweeney & Sons, Inc., is a wholesaler and distributor of Texaco motor fuels in Eastern Pennsylvania and Southern New Jersey. In addition to its wholesale business Sweeney owns several retail gasoline stations. Mission Gas Oil Company, Inc., and Petroleum Products Company are distributors who purchase fuel from Sweeney. The defendant Texaco, Inc., refines and sells gasoline and other petroleum products.
After several years as a consignee and wholesaler for other companies, Sweeney became a Texaco wholesaler and distributor in 1958. In 1963 Sweeney and Texaco entered into the distributor agreement at the heart of this litigation. Part of the agreement provided that Sweeney would haul its own fuel. When it sells motor fuel to distributors, Texaco charges a price that includes the cost of delivering the product to the distributor's bulk plant. If the distributor picks up fuel at Texaco's plant, however, as Sweeney did, it receives a discount or hauling allowance. The discount equals the lowest amount it would cost Texaco to deliver the fuel from a designated distribution point to the purchaser's bulk plant by common carrier, contract carrier, or Texaco company truck. Texaco initially designated its terminal in Westville, New Jersey, as Sweeney's pick-up point. Accordingly, Sweeney received a hauling allowance equal to the common carrier rate for trips between Westville and its bulk plant located in Pottstown, Pennsylvania.
Sweeney used the hauling allowance to its advantage. Between 1965 and 1970 Sweeney acquired several retail gasoline stations in addition to ones it already owned. The newly acquired stations were located within a twenty mile radius of Texaco's Westville, New Jersey, terminal. Sweeney picked up fuel in Westville and transported it directly to these stations. This practice enabled Sweeney to receive an allowance for hauling fuel from Westville to Pottstown, roughly fifty miles, while hauling it less than twenty miles. Receiving the greater allowance effectively lowered Sweeney's cost for gasoline which in turn allowed Sweeney to lower its retail prices.
Use of the hauling allowance was just one part of Sweeney's retail marketing strategy. A second major part was "no-frills" retailing. Prior to 1965, Sweeney's retail stations offered complete automobile repair and maintenance services in addition to fuel. Sometime in 1965 or 1966, Sweeney's stations began eliminating these services, becoming "gas and go" outlets. The lowered overhead at these stations allowed Sweeney to reduce its retail prices further. Unlike other discount outlets which sold gas under their own names, Sweeney's stations sold fuel under the Texaco name. Sweeney offered gasoline at a price between one and three cents lower than the price at which other retailers in the area offered major brand gasoline. After Sweeney adopted this no-frills retail sales practice, its retail sales and profits increased steadily.
Sweeney's prosperity did not augur well with competing Texaco retailers. Beginning in 1966, some of these retailers complained to Texaco that Sweeney's discount pricing was hurting their businesses. Sweeney contends that Texaco conspired with these retailers to terminate Sweeney's distributorship or to reduce its hauling allowance and thereby force Sweeney to raise its prices. Sweeney cites Texaco's actions in 1970 and 1971 as evidence of this alleged conspiracy.
The evidence disclosed that as early as 1966 Texaco had reviewed the status of Sweeney's hauling agreement. Texaco found that it could save at least $2,158 annually by supplying Sweeney from Macungie, Pennsylvania, rather than from Westville, New Jersey, due to Macungie's proximity to the Sweeney plant. When it learned of Texaco's consideration of a change to Macungie, Sweeney objected and Texaco postponed its decision on the matter.
By 1970, the economics of supplying Sweeney out of Westville had changed drastically. Instead of $2,158, Texaco's loss attributable to supplying Sweeney from Westville had risen to more than $58,000 annually. Texaco informed Sweeney in December, 1970, that it was changing Sweeney's supply point from Westville to Macungie under a provision in the hauling agreement permitting Texaco to terminate the agreement or to change the pick-up point. Nevertheless, Sweeney refused to go along with the change to Macungie. Texaco then notified Sweeney that it was terminating Sweeney's distributor and hauling agreements in sixty days, effective February 28, 1971.
After it received the termination notice, Sweeney attempted but failed to obtain an alternate source of supply. Sweeney then negotiated with Texaco. As a result of the negotiations, Sweeney's distributor's agreement was not terminated and the parties agreed on a compromise hauling arrangement on March 1, 1971.
Under the new hauling agreement, Sweeney continued to pick up at Westville until May 31, 1971, and received the allowance it had been getting for the distance from Westville to Pottstown. Thereafter, Sweeney picked up fuel at Macungie and received a hauling allowance based on the Macungie to Pottstown rate. Texaco also agreed that after May 31, 1971, Sweeney could pick up fuel at either location, at Sweeney's option, although the hauling allowance for all purchases would be based on the Macungie to Pottstown trip. This agreement mitigated the effect of the change in the hauling allowance by permitting Sweeney to continue supplying its southern New Jersey stations from nearby Westville.
After this new hauling agreement became effective, Sweeney began delivering non-Texaco fuel to Texaco brand stations in trucks bearing the Texaco trademark. Texaco learned of Sweeney's commingling and conducted a thorough investigation of Sweeney's operations using Texaco security personnel. The investigation confirmed Texaco's suspicion of Sweeney's pervasive trademark violations.
On December 17, 1971, Daniel A. Doherty, Texaco's Manager for the Philadelphia Region, told Texaco's Vice President of Sales, United States, of his decision to terminate Sweeney's distributor and hauling agreements. Doherty based his decision primarily on Sweeney's trademark violations and misrepresentations. In addition, Doherty explained that Sweeney's stations failed to maintain Texaco's brand integrity, image, quality, and prestige standards. Sweeney's stations were the subject of an inordinate number of consumer complaints about service. Credit card users, a particularly valued segment of the market, complained of credit card irregularities at Sweeney's stations. Coupled with Sweeney's practice of representing non-Texaco fuel as Texaco fuel, this evidence of Sweeney's failure to meet Texaco's standards led Doherty to believe that Sweeney was damaging Texaco's valuable trademark and image.
Texaco notified Sweeney that effective February 29, 1972, it would terminate both the 1963 distributor agreement and the March 1, 1971, hauling agreement. Although Sweeney tried again to obtain an alternate source of supply, it was again unsuccessful. After various negotiations, Texaco agreed to supply Sweeney until it gave a ten day notice of its intention to discontinue Sweeney's supply. No termination notice has been given, and Texaco continues to provide Sweeney with fuel.
The present litigation followed these events. Sweeney charged that Texaco conspired in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, with the dealers who complained about Sweeney's competitive practices. It also alleged that Texaco violated § 2 of the Sherman Act, 15 U.S.C. § 2, by attempting to monopolize the sale of Texaco fuel. Finally, Sweeney averred that Texaco discriminated against it in the price Texaco charged for fuel and thereby violated § 2(a) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a). Mission Gas Oil Company and Petroleum Products Company, two of Sweeney's wholesale customers, joined in Sweeney's lawsuit. Plaintiffs sought damages and injunctive relief. Texaco counterclaimed against Sweeney seeking injunctive and declaratory relief from Sweeney's commingling practices, basing its claims on various state, federal, and common law provisions. The district court dismissed Mission's and Petroleum's damage claims on the ground that they were improper plaintiffs because they did not purchase fuel directly from Texaco. After the close of the evidence the district court directed a verdict denying all of appellants' remaining claims and granting Texaco's prayer for injunctive and declaratory relief. Appellants challenge these adverse rulings.
The only § 1 contention before us is appellants' claim that certain Texaco dealers conspired with Texaco to have Texaco terminate Sweeney as a distributor or to reduce its hauling allowance.*fn1 Appellants' theory is that these retail dealers complained to Texaco about Sweeney's practice of retailing gasoline between one and three cents below their price, and that as a result of their complaints Texaco reduced Sweeney's hauling allowance to the rate set in the March, 1971, agreement. Appellants contend that the retailers' acts of complaining and Texaco's reaction to the complaints constituted concerted action in restraint of trade. The district court determined that appellants failed to offer sufficient evidence to permit a reasonable inference that Texaco terminated Sweeney's distributor agreement or changed Sweeney's hauling allowance because of competitors' complaints. We find no error in this determination. Moreover, we note that even if appellants had demonstrated that Texaco's actions were in response to these complaints, such evidence alone would not show the necessary concerted action.
Unilateral action, no matter what its motivation, cannot violate § 1. United States v. Colgate & Co., 250 U.S. 300, 307, 39 S. Ct. 465, 468, 63 L. Ed. 992 (1919); Harold Friedman, Inc. v. Kroger Co., 581 F.2d 1068, 1072 (3d Cir. 1978); Tripoli Co. v. Wella Corp., 286 F. Supp. 264, 266 (E.D.Pa.1968), aff'd, 425 F.2d 932 (3d Cir.), cert. denied, 400 U.S. 831, 91 S. Ct. 62, 27 L. Ed. 2d 62 (1970). By its terms, § 1 requires proof of a "contract, combination ... or conspiracy." 15 U.S.C. § 1. We have noted that the statutory language presents a single concept about common action, not three separate ones: " "contract ... combination or conspiracy' becomes an alliterative compound noun, roughly translated to mean "concerted action.' " Bogosian v. Gulf Oil Corp., 561 F.2d 434, 445-46 (3d Cir. 1977), cert. denied, 434 U.S. 1086, 98 S. Ct. 1280, 55 L. Ed. 2d 791 (1978) (quoting L. Sullivan, Law of Antitrust 312 (1977)).
To establish the existence of concerted action, appellants had to submit evidence from which a jury could reasonably infer that Texaco and others had a conscious commitment to a common scheme designed to achieve an unlawful objective. Klein v. American Luggage Works, Inc., 323 F.2d 787, 791 (3d Cir. 1963); United States v. Standard Oil Co., 316 F.2d 884, 890 (7th Cir. 1963). Direct proof of an express agreement is not required. On the contrary, the plaintiff may rely on an inference of a common understanding drawn from circumstantial evidence: "The picture of conspiracy as a meeting by twilight of a trio of sinister persons with pointed hats close together belongs to a darker age." William Goldman Theatres v. Loew's, Inc., 150 F.2d 738, 743 n.15 (3d Cir. 1945). Nevertheless, appellants had the burden of adducing sufficient evidence from which the jury could find illegal concerted action on the basis of reasonable inferences and not mere speculation. Venzie Corp. v. United States Mineral Products Co., 521 F.2d 1309, 1312 (3d Cir. 1975).
The necessary first step toward appellants' proof of a prohibited § 1 conspiracy was proof of a causal relationship between competitor complaints that Sweeney was selling Texaco gasoline several cents below their own price, and the reduction of Sweeney's hauling allowance. Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164, 168 (3d Cir. 1979). The mere reception of complaints by Texaco would be insufficient to prove this causal nexus. Nor would it suffice to prove only that some Texaco employees who knew of the complaints were also the ones who decided to terminate Sweeney's distributor agreement and change its hauling allowance.*fn2 The evidence must permit the inference that the alleged conspirators "had a unity of purpose or a common design and understanding, or a meeting of the minds." American Tobacco Co. v. United States, 328 U.S. 781, 810, 66 S. Ct. 1125, 1139, 90 L. Ed. 1575 (1946). See Klein v. American Luggage Works, Inc., 323 F.2d at 791.
Appellants claim that they submitted sufficient evidence to allow an inference of illegal concerted action. They point to testimony that beginning in 1966 or 1967 and continuing through 1979 some lessees of stations owned by Texaco complained to the refiner that certain stations supplied by Sweeney were marketing gasoline two or three cents per gallon lower than their prices. To establish their point, appellants relied on the testimony of several witnesses, but especially that of James P. Rodden, Daniel A. Doherty, and Glenn B. Murray.
Rodden is a former Texaco sales representative who left Texaco to become a partner of William D'Ippolito, a leading stockholder and managing officer in Sweeney and other petroleum products businesses. He testified that as early as 1966 or 1967 some Texaco retailers complained about pricing by stations supplied by certain Texaco distributors. Rodden explained that these complaints related both to stations supplied by Sweeney and to stations supplied by other Texaco distributors. App. at 927a-95a. He testified that he was not aware of any discussions within Texaco about changing Sweeney's hauling allowance in March, 1971, and that he did not discover the reduction until 1973. App. at 799a-801a.
Rodden testified that he "believed" Texaco changed Sweeney's hauling allowance because of the retailer complaints about the loss of volume at Texaco's retail stations. Rodden admitted, however, that his "belief" was just unsupported surmise, without factual basis. App. at 842a-46a. The district court determined that the surmise of Rodden "cannot, as a matter of law, support a jury finding of a contract, combination, or conspiracy between Texaco and other Texaco dealers either in 1970 or 1971." 478 F. Supp. at 255. We agree. In our view, Rodden's testimony goes no further than merely identifying retailer complaints. We turn now to other possible evidence of concerted action.
Appellants argue that proof of concerted action was also forthcoming from the testimony of Daniel A. Doherty, the manager of Texaco's Philadelphia region. Appellants assert that Doherty made the actual decision to terminate Sweeney's distributorship, "basing his decision partially on Sweeney's marketing strategy." Appellants' Brief at 18.
Doherty's testimony provides no help to Sweeney's theory. On June 8, 1979, appellants introduced the following deposition testimony of Doherty:
Q. Were you aware that Sweeney was a price-cutter in the area?
A. I was aware that Sweeney was engaging in a marketing strategy where the principal attraction of those retail outlets that he supplied was primarily, if not exclusively, based upon posting a price generally lower than major brand price in the areas.
Q. What factors entered into your decision to terminate Sweeney as the distributor?
A. Sweeney's marketing strategy that I observed and the consequences of it that I observed ....
Q. Is that the marketing strategy referred to previously?
A. There (were) other elements of it.
A. As a consequence of the kinds of retail operations that Sweeney apparently solicited and acquired wherein the ... primary business builder of the locations was a low, highly competitive retail price, the outlets to a concerning if not alarming degree did not meet the standards of housekeeping, service, or service capability. In addition to that, we received continuing customer complaints from Texaco customers and motorist customers and, more alarmingly, the best class of customer that we had was being impacted very heavily, and that was our credit card customers, because my memory is that his retail outlets were involved in credit card irregularities and it was apparent that Sweeney's ... marketing strategy, relied entirely on having the lowest or one of the lowest prices, which is entirely his prerogative, the prerogative of those people he serviced. But, the trend away from the prestige service that had been the hallmark and the objectives of Texaco retail marketing, certainly from my entire career, was clear, and was adversely impacting, in our opinion, on the entire brand integrity of Texaco in the area.
On June 13, 1979, appearing in open court, Doherty stated during cross examination by Sweeney's counsel:
Q. Now, did you discuss the fact Mr. Sweeney was a price cutter with Mr. Hicks, prior to Sweeney's termination?
A. I made the point yesterday, Mr. Kramer, that I never regarded Sweeney as a price cutter because I knew nothing about Sweeney's pricing. I don't know what he sold his retail for, so I couldn't characterize him as a price cutter. I never have.
Q. Now Mr. Doherty, isn't it a fact that at the time of your deposition you said that one of the factors among many ... that entered into your consideration to terminate Sweeney was the ...