UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT.
filed: December 8, 1961.
DELAWARE VALLEY MARINE SUPPLY CO.
THE AMERICAN TOBACCO CO., PHILIP MORRIS, INC.; LIGGETT & MYERS TOBACCO CO.; R.J. REYNOLDS TOBACCO CO.; P. LORILLARD CO.; LIPSCHUTZ BROS., INC.; JANIS LIPSCHUTZ, EXECUTRIX OF THE ESTATE OF ALBERT LIPSCHUTZ, DECEASED; JANIS LIPSCHUTZ; MORTON LIPSCHUTZ; MAE LIPSCHUTZ.
Before BIGGS, Chief Judge, and HASTIE and FORMAN, Circuit Judges.
Opinion of the Court
BIGGS, Chief Judge: The plaintiff-appellant, Delaware Valley Marine Supply Company, has sued the defendantsappellees, American Tobacco Company, Liggett & Myers Tobacco Company, P. Lorillard Company, Philip Morris, Incorporated and R.J. Reynolds Tobacco Company (the "tobacco companies"), Lipschutz Bros., Inc. and the individuals named in the title of this cause, alleging violation of Section 1*fn1,*fn2 of the Sherman Act, 15 U.S. C.A. § 1. The plaintiff seeks treble damages, attorney's fees and injunctive relief. Judgment was entered for all the defendants and the plaintiff has appealed.
The plaintiff, Delaware Valley Marine, is a corporation organized to sell tax-free tobacco products and liquor to vessels engaged in the foreign trade entering the Port of Philadelphia. It applied to the defendant tobacco companies for a "direct listing," to enable it to purchase cigarettes tax-free for resale to ships. All of the tobacco companies*fn3 declined to sell cigarettes to the plaintiff, and it never commenced to do business. At the time of the tobacco companies' refusals to do business with the plaintiff, all were selling direct to Lipschutz Bros., Inc., an established firm in the business of selling tobacco, whiskey and other supplies to ships in the Port of Philadelphia. In addition, Reynolds and Lorillard had a second Philadelphia outlet, M.J. Kelly Company, which was in the business of selling a full line of ship supplies. The plaintiff alleges that the tobacco companies acted in concert in restraint of trade and that Lipschutz in effect aided and abetted the conspiracy.
After all of the plaintiff's evidence had been presented the defendants moved for a directed verdict pursuant to Rule 50(a), Fed. R. Civ. Proc., 28 U.S.C. These motions were denied;*fn4 they were also denied when renewed at the close of all of the evidence. The trial court then submitted all issues to the jury on special interrogatories pursuant to Rule 49(a). After deliberating for five hours the jury was unable to agree on an answer to the first interrogatory*fn5 and was discharged. All the defendants then moved for judgment in accordance with their earlier motions for directed verdict as authorized by Rule 50(b).
The defendants argued that the plaintiff's case was fatally defective in three respects.*fn6 (1) that no proof had been introduced from which the jury could find that the plaintiff had such a business or property interest as to give it standing to maintain the suit at bar; (2) that there was no direct evidence of conspiracy and none from which a jury could infer that the defendants had conspired; and (3) that there was no proof that the plaintiff had suffered any damage. Reversing the position it had first taken when the motions were made, prior to the submission of the interrogatories to the jury, the trial court granted the defendants' motion to dismiss the action on the ground that the plaintiff had not proved any damage. See 184 F.Supp. 440.As the plaintiff had stated its view that a finding of damage was a necessary basis for the granting of injunctive relief, the trial court refrained from passing on evidence submitted by the plaintiff to prove the conspiracy. In view of the disposition that we make of the litigation it is unnecessary to pass on the issue of whether proof of damages is a prerequisite to obtaining an injunction. In disposing of the Rule 50(b) motions the trial court also ruled that there was evidence from which the jury was entitled to find that the plaintiff had a business within the meaning of Section 4 of the Clayton Act, 15 U.S.C.A. § 15, and therefore possessed the standing to maintain the suit at bar.The defendants have not contested this ruling.
On appeal the plaintiff urges that the trial court's ruling on damages was erroneous. The defendants contend that it was not and assert also that the plaintiff failed to produce any evidence of conspiracy and that therefore the motions for directed verdict in their favor must be granted.*fn7
On motions for a directed verdict in favor of the defendants*fn8 the evidence must be considered in the light most favorable to the plaintiff and it is entitled to the benefit of all inferences which can reasonably be drawn from the record in its behalf. So viewing the case we conclude that the judgment below must be affirmed because of the failure of the plaintiff to produce evidence from which a jury would be entitled to infer that the defendants had conspired in refusing to deal with the plaintiff.
In so concluding we are aware of the difficulties of proof of modern antitrust conspiracy and that the difficulties increase as the number of conspirators lessens.*fn9 It is certainly true that "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."*fn10 But is is the fact that conspiracy remains an essential ingredient of a case based on Section 1. Conscious parallelism, relied on heavily by the plaintiff here, is of aid in demonstrating the existence of sophisticated and silent agreements which so often have injuriously restrained trade. But conscious parallelism is not yet a conclusive legal substitute for proof of conspiracy.*fn11 It is circumstantial evidence the probative value of which necessarily varies with the kind of parallelism and the factual setting where it is found.*fn12 Some business practices may provide strong evidence of agreement: sealed bids for 6,000 barrels of cement, for example, from eleven firms, identical to the fraction of a cent, could hardly be coincidence.*fn13 The inference of agreement is strengthened if the participants are many and if they comprise a nonoligopolistic industry, where the economic pressures forcing action and reaction with competitors are absent. But, as we stated in Milgram v. Loew's, Inc ., 192 F.2d 579, 583 (3 Cir. 1951), cert. denied, 343 U.S. 929 (1952): "This does not mean . . . that in every case mere consciously parallel business practices are sufficient evidence, in themselves, from which a court may infer concerted action." We think this case falls within the category that we recognized in our dictum in Milgram, the category in which conscious parallelism is not enough.
As is usual in Section 1 cases, the plaintiff here offers no direct proof of conspiracy.In effect, all of the direct evidence is to the contrary for all the defendants have denied expressly the existence of any agreement. The plaintiff's case at its best can be summed up as follows: In January or February, 1956, Drew J. T. O'Keefe, Esquire, a member of the Pennsylvania Bar, who was one of the parties interested in forming the plaintiff corporation,*fn14 contacted two local tobacco company representatives, Beckwith of Philip Morris and Comey of Reynolds. During the ensuing discussions, conducted separately, O'Keefe asked to purchase cigarettes and indicated that he intended to get in touch with all major cigarette manufacturers. Both Beckwith and Comey refused the applications but stated that their principals probably would sell to the plaintiff if it obtained other brands of cigarettes for sale. No additional contacts were made with any of the defendants until July, 1956, some weeks subsequen to the incorporation of the plaintiff. At this time letters of application were sent to at least three of the tobacco companies, PM, American and Liggett & Myers. Reynolds and Lorillard claimed that these letters were not received by them and were not mailed. Receiving no response, the plaintiff sent registered letters to these three defendants on August 21, 1956, offering to buy C.O.D., and asserts that it sent identical registered letters to the other two tobacco company defendants. Reynolds and Lorillard contend that they did not receive these letters. We will assume arguendo that there was sufficient evidence offered by the plaintiff to prove to the jury that the plaintiff's letters were mailed by it to Lorillard and received by that company. As stated, O'Keefe previously had made direct contact with a representative of Reynolds and had tried to purchase cigarettes from that company.
In the interval between the letters, i. e ., between July 7 and August 21, Clark, who was to be the plaintiff's manager, saw Miss Tooher, who was in charge of tax-free sales at L&M, at the company's New York office. He was informed that L&M did not wish to add another distributor in Philadelphia at that time. On the same day that Clark saw Miss Tooher he had an interview with Turner, secretary of Philip Morris Overseas. Clark was encouraged after this visit, although PM did not commit itself. PM was the only tobacco company with which the plaintiff had any contact after the letter of August 21, 1956. During the first part of 1957, PM made a thorough investigation of the plaintiff and decided not to alter its earlier decision of rejection. For the purposes of this decision we will assume that it is a fact that all of the defendant tobacco companies rejected the plaintiff's applications for direct listing. The defendants urge that there can be no finding of parallelism because the manner of rejection was not uniform: L&M and American denied the application by letter without any investigation; Lorillard and Reynolds did not even answer the letters; PM adhered to its earlier decision but only after extensive investigation and consideration. But the defendants cannot escape the impact of the antitrust laws so easily.*fn15 If it were otherwise a charge of conspiracy could always be avoided by agreeing to go home by different roads. The plaintiff's case, of course, would be the stronger if it could show that all the tobacco company defendants had rejected the plaintiff's applications in the same way: vide, the automatic refusal to deal of Milgram v. Loew's, supra . But there was uniformity of action on a crucial point: all the corporate defendants denied the plaintiff's applications.If there are sufficient other facts and inferences which can be drawn from the record from which the jury might reasonably find concerted action, the plaintiff will not be prevented from recovery simply because of differences in the ways in which its applications were rejected by the defendants.
The issue of whether there is evidence from which a jury could find that the defendants or some of them knew that other defendants had or would reject the plaintiff as a purchaser is a troublesome one. All of the defendants, save PM, deny that they had knowledge that the plaintiff's application had been or would be denied by any other defendant tobacco company. During 1957, PM, in adhering to its earlier decision not to place the plaintiff on its direct sales list, was aware of the fact that the plaintiff had experienced difficulty in obtaining cigarettes from other companies. The plaintiff's representatives testified that they disclosed this fact to PM's representatives in an interview in 1957.*fn16 Although we do not find the testimony of the other defendants' witnesses to the effect that they were not aware of the rejections by the other tobacco companies of the plaintiff's applications "incredible" as we did in Ball v. Paramount Pictures, Inc ., 169 F.2d 317, 320-21(3 Cir. 1948), cert. denied, 339 U.S. 911 (1950), we do conclude that there is in the record some evidence from which a jury would be entitled to infer that each of the tobacco companies was aware of the action taken by each of the others.
Thus the evidence in the record is sufficient to support a finding by a jury of conscious parallelism but in this case consciously uniform business behavior of the kind shown, standing alone, is not enough to sustain a finding of conspiracy. The situation at bar was not of a sort which allowed much scope of action to the participants. The tobacco companies of course could say whether they would or would not put the plaintiff on their tax-free lists, in effect licensing it to make sales to ships in the Port of Philadelphia. But this in reality was simply saying "Yes" or "No". Here the five tobacco companies all said "No". The suspicion which would be created by the unlikelihood of numerous firms reaching one of many possible conclusions is lacking and therefore the unanimity of the tobacco companies' rejections of the plaintiff's applications can afford no substantial basis for an inference of conspiracy. The asserted significance of unanimity of rejection becomes evanescent when one remembers that it is the plaintiff itself which so strongly asserts that to be successful in this type of ship chandlery the chandler must have available for sale all major brands of cigarettes, this assertion being concurred in by most of the defendants.*fn17 It follows that if each tobacco company knew, as the plaintiff so forcibly asserts, that the others would not supply cigarettes to the plaintiff the sale of one brand of cigarettes to it by one of the tobacco companies would have been a costly and futile gesture. To draw proof of conspiracy from such circumstances is to strain credulity.
The fact that the plaintiff offered to buy C.O.D. and that this offer was rejected has no real probative value here. The letters of July 7 and August 21, 1956 do not furnish any substantial indications of the plaintiff's financial responsibility. Even when we consider that matter to which the plaintiff seemingly attaches great importance, viz ., complaints to the tobacco companies about Lipschutz and dislike of Lipschutz along the waterfront,*fn18 we are still of the opinion that the evidence falls short of the minimum necessary to support a finding of conspiracy.
To hold to the contrary would be to allow speculation by the jury for we can find no additional circumstances which would tend to cast suspicion on the defendants' rejections of the plaintiff's applications as an exercise of independent judgment. The circumstances of the case at bar afford a striking contrast to those of cases in which findings of conspiracy have been premised on the doctrine of conscious parallelism.*fn19 The plaintiff contends that the reason given here by the defendant tobacco companies for their refusals to license the plaintiff were false as the District Court implied in Milgram, 192 F.2d 579, at p. 585. But the tobacco companies*fn20 stated in effect that their representation in the Port of Philadelphia was adequate and that the information disclosed by investigation and the plaintiff's applications did not indicate that it had the experience, financial responsibility and other attributes which would qualify it as a potentially successful distributor. These statements find full support in the record. In 1956, three companies, viz ., PM, L&M, and American, with only one outlet did seven-eighths of the total business transacted in the Port of Philadelphia, and each had substantial increases in business over the previous year. Reynolds and Lorillard, although far behind the three leaders, had recently engaged a second distributor and their sales were increasing. Many of the decisions in which courts find conspiracy on the basis of circumstantial evidence do so because the defendants acted in apparent contradiction of their own economic self-interest. In such cases there was evidence that the plaintiff had made a better offer than did those with whom the defendant was currently doing business,*fn21 or that the plaintiff's place of business was superior to that supplied by the defendant.*fn22 No better offer was proven here, nor was it shown that the plaintiff could provide facilities equal to those of Lipschutz or Kelly. In William Goldman Theatres, Inc. v. Loew's, Inc ., 150 F.2d 738 (3 Cir. 1945), cert. denied, 334 U.S. 811 (1948), one of the defendant distributors had a 100% monopoly on first-run exhibition in Philadelphia. This distributor sought to continue the monopoly, which inured, to his benefit. Other distributors cooperated, apparently in return for similar favorable treatment elsewhere.*fn23 The defendant manufacturers in this case have no interest in the existing agency accounts of Lipschutz or Kelly. Goldman emphasized the fact that the defendants did not place any responsible executives on the stand to rebut the allegation of conspiracy, 150 F.2d 738, at p. 743: there was no silence here. In the Ball case, supra, 169 F.2d 317, at p. 319, the plaintiff introduced evidence that one of the defendant distributors stated that it would use all of its influence to see that other distributors sent their first-run films to the defendant theater, in which it had a 50% interest. The plaintiff offers no evidence of coercion arising from the facts in the instant case. In Milgram this court attached some importance to the decision in United States v. Paramount Pictures, Inc .,*fn24 involving a conspiracy similar to that which was alleged in Milgram and which had been decided against the defendants, the same persons in fact as were the defendants in the Milgram case. See 192 F.2d 579, at pp. 583-584. The defendants in the case at bar, unlike those in Milgram, do not suffer from the disability of such a prior adverse judgment.
Two other factors deserve mention. In the Milgram case, we held that the district court judge was justified in taking into consideration the fact that the eight defendants rejected the plaintiff without giving the matter serious consideration. 192 F.2d 579, at p. 585. The plaintiff urges that the denials were automatic in this case also. This argument is not available against PM, which gave the plaintiff's application thorough consideration. There is no evidence to indicate what attention was accorded the plaintiff's offer in the case of Reynolds and Lorillard, assuming, as we have assumed, that they received O'Keefe's letters.*fn25 White, the export manager of American, had the issue of licensing the plaintiff under consideration for two days, according to his uncontradicted testimony.The evidence does suggest that L&M's denial was perhaps automatic, but L&M's position in the market strips this of any sinister significance. At the time L&M was selling the large proportion of 42% of the dollar volume in the Port of Philadelphia; in addition, its most recent experience with a sea stores selling agency other than Lipschutz had ended with the bankruptcy of the firm in 1951. Finally, the plaintiff seeks support for a finding of conspiracy in the fact that the defendants had adhered to the policy of rejection in the past. Of course this argument cannot be applied to Reynolds and Lorrillard who had in fact accepted a direct account other than Lipschutz. There are only three instances in the record, other than the plaintiff's application, in which at least two of the defendants refused to deal with applicants. L & M and American rejected all three; PM rejected one. As is the case with the rejection of the plaintiff, economic circumstances prevent these denials from serving as bases for inferences of agreement. L & M, American and PM were the three dominant firms in the market, and all were doing very well with Lipschutz at the times of the applications. We do not think that such infrequent action can show conspiracy. On the basis of this record, giving the plaintiff the accumulative benefit of all facts in its favor and of all logical and reasonable inferences to be drawn therefrom, we are forced to conclude that the plaintiff has failed to produce evidence sufficient to support a jury finding of conspiracy.
In so deciding, we are not unmindful that the defendants' refusal to deal is as effective in foreclosing the plaintiff from the sea stores tobacco business as an agreement to do so would be. It has been argued that such uniform decisions, made under economic circumstances tending to make the act of one firm or company dependent upon the reaction of others, violate Section 1 even though conspiracy is absent.*fn26 With this we cannot agree. Section 1 specifies means as well as ends. Perhaps as a matter of public policy restraint of trade per se should be controlled*fn27 but conspiracy is required in this case.
What we have said in respect to the defendant tobacco companies renders it unnecessary to deal with the contentions of Lipschutz Bros., Inc. and of the individual defendants or to discuss the grounds upon which the court below rendered judgment.
The judgment will be affirmed.