Unpublished Disposition, 852 F.2d 1290 (9th Cir. 1988)

MEMORANDUM^* 

Appeal from the United States District Court for the District of Montana; Charles C. Lovell, District Judge, Presiding.

John and Bettie Taggart appeal the district court's grant of summary judgment in favor of defendants David Rutledge and Conoco, Inc. The Taggarts argue that the district court erred in dismissing their various antitrust claims because material issues of fact exist which should have been presented to the jury. We affirm.

DISCUSSION

We have jurisdiction to hear the Taggarts' appeal pursuant to 28 U.S.C. § 1291.

I. The Taggarts' Federal Antitrust Claims.

We review the district court's grant of summary judgment de novo. T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Ass'n., 809 F.2d 626, 629 (9th Cir. 1987). As the parties moving for summary judgment, the defendants have the initial burden of proffering a "plausible and justifiable" explanation of their conduct that is consistent with proper business practices and that rebuts the Taggarts' allegation of conspiracy. Id. at 632. See also Barnes v. Arden Mayfair, Inc., 759 F.2d 676, 680 (9th Cir. 1985). Once a legitimate business explanation is established, the Taggarts cannot rely on mere allegations to defeat the motion for summary judgment. Instead, they must set forth specific facts that tend to exclude the possibility that the defendants acted independently. T.W. Electrical Service, Inc., 809 F.2d at 632.

A. The Taggarts' Claims Under Sec. 1 of the Sherman Act.

The Taggarts make two specific claims under section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. First, they contend that Conoco's decision to sell its Bozeman properties as a package violated section 1 because it condensed many competitive dealers into one, reducing competition. Along this line, they assert that the Bozeman package sale was the result of a conspiracy between Conoco and Rutledge to ensure that Rutledge would be in a position to control the Bozeman market. Second, the Taggarts contend that the Supply Agreement they entered into with Rutledge violates section 1 because it allows Rutledge to fix the retail price of gasoline by raising or lowering the wholesale price.

Section 1 of the Sherman Act prohibits " [e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." 15 U.S.C. § 1 (1982). To maintain a successful section 1 action, the Taggarts must show (1) the existence of an agreement or a conspiracy, (2) that resulted in the unreasonable restraint of trade, under either a per se rule of illegality or a rule of reason analysis, and (3) that the restraint affected interstate commerce. T.W. Electrical Service, Inc., 809 F.2d at 632-33.

1. Conoco's Package Sale.

It is well established that the independent, unilateral action of a single manufacturer cannot give rise to a section 1 violation. United States v. Colgate & Co., 250 U.S. 300, 307 (1919). A manufacturer can generally deal with whomever it likes and its decision to terminate or change its distributorships will not violate antitrust laws as long as the decision is independently made. See Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761 (1984); Sierra Wine and Liquor Co. v. Heublein, Inc., 626 F.2d 129, 133 (9th Cir. 1980). Conoco demonstrated to the district court that its MAAP program was a legitimate business decision, designed to obtain a better return on its investment. Conoco personnel stated that the package sale system was used to simplify the disposal of assets in a manageable time frame and that the package system allowed for the sale of a cluster of properties that a jobber could logically and economically operate.

To show a conspiracy, the Taggarts must present evidence that tends to exclude the possibility that Conoco was acting independently and tends to prove that Conoco and Rutledge had a "conscious commitment to a common scheme designed to achieve an unlawful objective." See Monsanto, 465 U.S. at 764. In an attempt to show a conspiracy, the Taggarts assert that Conoco's bidding process was a sham and that Conoco never intended to allow anyone other than Rutledge secure the bid. As evidence of this, the Taggarts point to the fact that Rutledge, as a past Conoco salesman, was familiar with Conoco's procedures and was in a position to deal and negotiate with Conoco. Moreover, they argue that Conoco favored Rutledge by agreeing to sell the package at a price below the asking price and by including a parcel of valuable land in the deal.

The record shows, however, that the Taggarts never attempted to negotiate with Conoco and never submitted a bid. Rutledge, on the other hand, did pursue the purchase of the properties; since he was the only bidder, Conoco negotiated with him to reach an acceptable bargain. A Conoco manager testified that Conoco often did not get its asking price when selling a package. In addition, the Taggarts did not demonstrate that Conoco had any motivation to sell the package exclusively to Rutledge rather than any other interested buyer. Finally, the additional lot Rutledge purchased was not part of the package; Rutledge bid on it separately. The Taggarts knew this land was for sale and could have sought to purchase it themselves before Rutledge placed a bid on it.

The district court correctly concluded that the Taggarts relied simply on their "suspicions and feelings" to support the conclusion of a conspiracy between Conoco and Rutledge. Conoco's actions are consistent with permissible competition; they do not support an inference of antitrust conspiracy. See Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986) ("conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy."). The Taggarts have produced no specific facts from which a reasonable inference of a conspiracy could have been drawn; therefore, the district court properly granted summary judgment in the defendant's favor.

2. Price Fixing.

The Taggarts allege that Rutledge, as both a retailer competitor and wholesale distributor, engaged in horizontal and vertical price fixing in violation of section 1. Horizontal price fixing occurs when retail competitors arrange to set prices and thus interfere with free market forces. See 49er Chevrolet, Inc. v. General Motors Corp., 803 F.2d 1463, 1466 (9th Cir. 1986), cert. denied, 107 S. Ct. 1606 (1987). Vertical price fixing occurs when a supplier attempts to fix the prices charged by those who resell his products. General Cinema Corp. v. Buena Vista Distribution Co., 681 F.2d 594, 597 (9th Cir. 1982). The district court concluded that neither type of price fixing violation occurred here.

To establish a per se horizontal price fixing violation, the Taggarts must show some type of concerted action among competitors to set retail prices. 49er Chevrolet, Inc., 803 F.2d at 1466-67. The Taggarts made no attempt to prove that Rutledge agreed or conspired with other retail gasoline stations to set prices; thus, the court correctly dismissed this claim as a matter of law.

To establish a per se vertical price fixing violation, the Taggarts must show (1) that Rutledge pressured them into maintaining prices at a certain level, and (2) that this coercion actually impinged upon their freedom to set resale prices. Filco v. Amana Refrigeration, Inc., 709 F.2d 1257, 1266 (9th Cir.), cert. dismissed, 464 U.S. 956 (1983). The Taggarts argue that Rutledge indirectly set retail prices by dictating wholesale prices. Since they were bound under the Supply Agreement to purchase gasoline exclusively from Rutledge, they had no choice but to pay his price. Vertical price fixing is not present, however, when the supplier dictates only the wholesale price. See e.g., Mesirow v. Pepperidge Farm, Inc., 703 F.2d 339, 344 (9th Cir.), cert. denied, 464 U.S. 820 (1983). The Taggarts testified that they set their own retail prices and nothing in the record reflects otherwise. Mr. Taggart noted that each dealer must decide whether gasoline will be used at the station as a draw or as an income generator. The decision of what margin to use and what retail price to charge was always with the Taggarts. Absent Rutledge's attempt directly to control the Taggarts' retail gasoline prices, a vertical price fixing claim under section 1 cannot stand.

Finally, the Taggarts cannot establish a vertical price fixing violation under the "rule of reason" analysis. See 49er Chevrolet Inc., 803 F.2d at 1468 (vertical price fixing is usually evaluated by rule of reason). Under the rule of reason, the Taggarts must show that the Supply Agreement actually injured competition. O.S.C. Corp. v. Apple Computer Inc., 792 F.2d 1464, 1469 (9th Cir. 1986). Injury to the Taggarts alone, as the antitrust plaintiffs, is not sufficient to prove injury to competition. Id. Instead, a relevant market definition must be established and the Taggarts must produce some evidence tending to show a competitive injury to this market. While the Taggarts may have adequately defined the relevant geographic market as the three-county area surrounding Bozeman, they did not introduce any probative evidence supporting their claim of competitive injury. Thus, the district court properly held that the Taggarts' vertical price fixing claims must fail as a matter of law.

B. Attempted Monopoly Under Sec. 2 of the Sherman Act.

The Taggarts contend that Rutledge violated section 2 of the Sherman Act by attempting to monopolize Conoco's operation in the Bozeman area. To establish a section 2 claim of attempted monopoly, the Taggarts must show (1) that Rutledge had the specific intent to control prices or destroy competition; (2) that Rutledge engaged in predatory or anticompetitive conduct directed to accomplishing this goal; and (3) that a dangerous probability of success existed. Airweld, Inc. v. Airco, Inc., 742 F.2d 1184, 1192 (9th Cir. 1984), cert. denied, 469 U.S. 1213 (1985). The district court correctly found that Taggarts' section 2 claim was without merit because the Taggarts offered no evidence that could show predatory or anticompetitive conduct.

In an attempt to show anticompetitive conduct, the Taggarts alleged that on at least two or three occasions, Rutledge engaged in predatory pricing by selling gasoline at retail prices lower than the wholesale prices he charged them. However, predatory pricing exists only if a retailer's price does not equal or exceed the retailer's average variable cost of production. Zoslaw v. MCA Distributing Corp., 693 F.2d 870, 887-88 (9th Cir. 1982), cert. denied, 460 U.S. 1085 (1983). Alternatively, predatory pricing exists if Rutledge sacrificed greater profits or incurred greater losses than necessary in order to drive the Taggarts out of the market. Id. at 888. See also William Inglis & Sons Baking Co. v. ITT Continental Baking Co. Inc., 668 F.2d 1014, 1035 (9th Cir. 1981), cert. denied, 459 U.S. 825 (1982).

The Taggarts never attempted to provide any evidence on Rutledge's costs and never attempted to show that Rutledge sacrificed profits or incurred losses. Instead, they merely asserted that Rutledge was engaging in predatory pricing because his retail gas price was occasionally lower than his wholesale price. Under Zoslaw, this is an insufficient showing to survive a motion for summary judgment. See Zoslaw, 693 F.2d at 888 (summary judgment upheld where antitrust plaintiff never made any claim or produced any evidence showing either that defendant's prices were below average cost or that defendant incurred losses). As the Zoslaw court noted, "any other conclusion would support the perverse rationale that a defendant may not compete by lowering its prices 'if competition would injure its competitors.' " Id. (quoting California Computer Products, Inc. v. International Business Machine Corp., 613 F.2d 727, 742 (9th Cir. 1979)). Accordingly, the district court correctly found that the Taggarts' predatory pricing claim was inadequate as a matter of law.

C. Price Discrimination.

The Taggarts contend that Rutledge violated section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a), by charging different wholesale prices among retailers and by using discriminatory credit and rebate terms. To prove jurisdiction under section 2(a) of the Robinson-Patman Act, the Taggarts must demonstrate (1) that Rutledge is "engaged in interstate commerce;" (2) that the price discrimination occurred "in the course of such commerce;" and (3) that the purchases involved in such discrimination were made in commerce. Zoslaw, 693 F.2d at 877. The purpose of the Robinson-Patman Act is "to reach the operations of large interstate businesses in competition with small local concerns." Standard Oil Co. v. Federal Trade Commission, 340 U.S. 231, 238 (1951). The Taggarts cannot establish the second element of the "in commerce" requirement, that the price discrimination occurred in the course of commerce; thus, their claim was properly dismissed as a matter of law.

The second element of the "in commerce" test removes from the statue's reach the intrastate seller who purchases goods on the interstate market. The flow of commerce ends when goods reach either their intended destination or an independent distributor. Zoslaw, 693 F.2d at 878, 880. In this case, the flow of commerce ended when the gasoline reached Rutledge, an independent distributor, in Montana. The Taggarts can point to no facts in the record to support their assertion that Rutledge is a Conoco agent. Indeed, the record shows that as a jobber, Rutledge entered into a "Jobber Franchise Agreement" with Conoco that expressly stated that jobbers are "independent businessmen." Rutledge exercises exclusive control over his business practices, owns his own equipment, hires and fires his own employees, and directs his own business operations. Under these uncontradicted facts, the district court correctly concluded that Rutledge is an "independent distributor" thus breaking the flow of commerce between the manufacturer and the retailer. Since Rutledge sells only to Montana retailers, the situation here is simply not within the contemplated application of section 2(a).

D. Requirements Contract.

The Taggarts contend that the Supply Agreement they entered into with Rutledge constitutes an illegal exclusive dealing arrangement under section 1 of the Sherman Act and section 3 of the Clayton Act, 15 U.S.C. § 14. To establish an antitrust violation, the Taggarts must show that their requirements contract forecloses competition in a "substantial share of the line of commerce affected." Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961); Twin City Sportservice, Inc. v. Charles O. Finley & Co. Inc., 676 F.2d 1291, 1304 n. 9 (9th Cir.), cert. denied, 459 U.S. 1009 (1982) (Finley II). The "substantial share" element means that "the opportunities for other traders to enter into or remain in that market must be significantly limited." Tampa Electric, 365 U.S. at 328.

In this case, the district court correctly found that there was no evidence that the Supply Agreement foreclosed competition in a substantial share of the market. The Taggarts contend that the substantiality test is satisfied because the Supply Agreement prevents other suppliers in the area from competing for the Taggarts' gasoline business, which constitutes a substantial dollar volume each year. Thus, they argue that competition is foreclosed because suppliers are discouraged from entering the Bozeman market. However, the Taggarts' argument of decreased market competition in Bozeman is not supported by the record. The wholesale gasoline market in Bozeman is very competitive, with twelve jobbers competing for the business. The Rutledge-Taggart Supply Agreement has not been shown to have excluded any of these competitors from the market and the Taggarts have not shown that the agreement will probably keep new competitors out. " [A] mere showing that the contract itself involves a substantial number of dollars is ordinarily of little consequence" in evaluating the substantiality of market share. Id. at 329. The Taggarts have offered no evidence to rebut the fact that competition has flourished in Bozeman despite the Supply Agreement; thus, the district court correctly dismissed this claim as a matter of law.

E. Tying Arrangement.

Finally, the Taggarts allege that the Supply Agreement violates section 1 of the Sherman Act and section 3 of the Clayton Act by illegally tying the sale of gasoline to the sale of the Taggarts station. To establish an illegal tying arrangement, the Taggarts must show "(1) a tie-in between two distinct products or services; (2) sufficient economic power in the tying product market to impose significant restrictions in the tied product market; and (3) an effect on a not insubstantial volume of commerce in the tied product market." Airweld, Inc., 742 F.2d at 1189. The district court found that there was no evidence that the impact of the Supply Agreement on competition was sufficient to amount to an antitrust violation.

The controlling factor to evaluate in deciding whether the Supply Agreement affects a "not insubstantial volume of commerce" in the tied product, gasoline in this case, is the total volume of gasoline sales to the Taggarts. Moore v. Jas. H. Matthews & Co., 550 F.2d 1207, 1216 (9th Cir. 1977). If just a single purchaser is forced to purchase the tied item, however, the resultant impact on competition is generally not sufficient to implicate the antitrust laws. See Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2, 16 (1984). The district court correctly held that this tying arrangement affected only a single purchaser, the Taggarts, and that it therefore could not be found to be a violation of the antitrust laws.

II. The Taggarts' State Law Claims.

The district court held that two of the Taggarts' state law claims were precluded as res judicata. The two claims were those in Count IV of the complaint, alleging that the Supply Agreement was void under Montana law because it permitted illegal price fixing, and Count V, alleging that the Agreement was void for impossibility of performance and illegality of purpose. The district court held that these claims were precluded by the settlement of an action brought in 1980 by Rutledge against the Taggarts. In that case, Rutledge had sued for breach of several provisions of the Supply Agreement. After the settlement was reached, the action was dismissed by stipulation.

Under the doctrine of claim preclusion, a prior judgment forecloses all matters that were, or should have been, litigated between the same parties in the prior action. Marrese v. American Academy of Orthopedic Surgeons, 470 U.S. 373, 376 n. 1 (1985). The preclusive effect of the prior judgment in this case must be determined under Montana law. Allen v. McCurry, 449 U.S. 90, 96 (1980).

Under Montana law, the stipulated dismissal in compromise of the action between Rutledge and the Taggarts fully settled the case on its merits, and the dismissal bars subsequent proceedings between those parties involving the same subject matter. Smith v. Baxter, 419 P.2d 752 (Mont.1966). Any claim that should have been raised by the Taggarts as a compulsory counterclaim is barred whether they asserted it in the 1980 litigation or not. See O'Neal, Booth & Wilkes, P.A. v. Andrews, 712 P.2d 1327, 1329 (Mont.1986). The 1980 litigation was an action by Rutledge to enforce provisions of the Supply Agreement. The claims that the Taggarts now seek to assert in Counts IV and V of their complaint challenge the legality and possibility of performance of the Agreement. Because they arise from the same transaction that was the subject of the 1980 action, those claims should have been asserted in 1980, and are barred now. See Julian v. Mattson, 710 P.2d 707, 7109 (Mont.1985). The determination of what is included in a "transaction" is a flexible one under Montana law; it comprehends a "logical relationship" between the claims. See id. See also USM Corporation v. SPS Technologies, 102 F.R.D. 167, 170 (N.D. Ill. 1984). The logical relationship clearly exists here; the district court was accordingly correct in holding the two claims barred.

The district court refused to exercise pendent jurisdiction over the remaining state claims asserted by the Taggarts. Because the federal claims had been properly dismissed, it was well within the court's discretion to decline to exercise pendent jurisdiction. See Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1362 (9th Cir. 1985) (en banc).

CONCLUSION

The judgment of the district court is, in all respects, AFFIRMED.