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Larry v. Muko Inc.

decided: January 25, 1982.

LARRY
v.
MUKO, INC., APPELLANT V. SOUTHWESTERN PENNSYLVANIA BUILDING AND CONSTRUCTION TRADES COUNCIL AND LONG JOHN SILVER'S, INC., BUILDING COUNCIL OF PITTSBURGH, PA. & VICINITY SOUTHWEST BUILDING TRADES COUNCIL AND PITTSBURGH BUILDING TRADES COUNCIL, APPELLANTS LONG JOHN SILVER'S, INC., APPELLANT



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA C.A. No. 75-0979

Before Adams, Van Dusen and Sloviter, Circuit Judges.

Author: Adams

Opinion OF THE COURT

This is the second time this case has come before us. In Larry V. Muko, Inc. v. Southwestern Pennsylvania Building and Construction Trades Council, 609 F.2d 1368 (3d Cir. 1979) (Muko I), this Court, sitting in banc, reversed a district court order granting defendant's motion for a directed verdict and remanded the case for a new trial. The second trial resulted in a jury verdict for the defendants, and the plaintiff once again has appealed to this Court. We affirm.

I.

Long John Silver's, Inc. ("Silver's"), a Delaware corporation headquartered in Lexington, Kentucky, operates fast food seafood restaurants in several markets across the United States. In 1973, it decided to enter the Pittsburgh, Pennsylvania market, and contracted with Larry V. Muko, Inc. ("Muko"), a non-union general contractor experienced in constructing fast food restaurants, to build its first outlet in Monroeville, a suburb of Pittsburgh. After completion of the Monroeville restaurant, Silver's president Jim Patterson met with Larry Muko and indicated his willingness to give future construction business to Muko if his prices remained competitive and the quality of his construction remained good. Muko was awarded a contract to build a second restaurant in Lower Burrell, Pennsylvania, but Silver's did not commit itself any further.

During construction of the Monroeville restaurant, two labor organizations, the Southwestern Pennsylvania Building and Construction Trades Council and the Building and Construction Trades Council of Pittsburgh (the "Councils"), picketed the site. After completion of construction, handbills were distributed to customers of the Monroeville restaurant urging them not to patronize Silver's because the chain used "contractors who are paying less than the established prevailing wages in the area." Appendix at 115a. The handbill exhorted the customers "to protect the living and working standards established by the Building Trades Council." Id.

Silver's management was alarmed when it was informed that customers were leaving the premises after reading the handbill. In response to the leafletting, Silver's arranged a meeting with the Building Trades Councils. After the meeting, Silver's vice-president sent a letter to the Councils emphasizing the company's "desire to establish good working relationships with the unions in the Greater Pittsburgh Area" and stating Silver's "intent ... to use only union contractors certified by the (Councils)" in the future. The letter concluded: "In any relationship between two parties there must be mutual need and assistance.... It is ... extremely important to both parties that our location at Monroeville, Pennsylvania and the one under construction in Lower Burrell Township, Pennsylvania not be subjected to any kind of informational picketing." Appendix at 116a-117a.

Subsequently, Silver's employed only unionized general contractors to build its Pittsburgh-area restaurants, although the general contractors were free to use non-union subcontractors. Silver's discussed with Muko the question whether Muko would be willing to bid on the construction of its restaurants as a union firm. Muko declined to build under such circumstances, however, and it was not awarded any of Silver's contracts after the construction of the Lower Burrell restaurant.

On August 12, 1975, Muko filed the present lawsuit against Silver's and the two Councils, alleging that the defendants had entered into an agreement to award contracts for the construction of Silver's restaurants in the Pittsburgh area only to union contractors. This, claimed Muko, was an unreasonable restraint of trade in violation of section 1 of the Sherman Act and sections 4 and 16 of the Clayton Act. After Muko presented its case at a jury trial held on July 19-20, 1977, the district court granted the defendants' motion for a directed verdict. The directed verdict apparently was granted "because the court believed the evidence could sustain no finding other than a unilateral decision on the part of Silver's to accept bids only from union contractors." 609 F.2d at 1372. On appeal, this Court, sitting in banc, reversed and remanded the case for a new trial. 609 F.2d 1368. We held that the jury could have found an agreement between Silver's and the Councils that was not exempt from antitrust scrutiny because, under the standards set forth in Connell Construction Co. v. Plumbers & Steamfitters Local 100, 421 U.S. 616, 95 S. Ct. 1830, 44 L. Ed. 2d 418 (1975), such an agreement might have "actual or potential anticompetitive effects that would not flow naturally from the elimination of competition over wages and working conditions." 609 F.2d at 1373.

Upon remand, a bifurcated jury trial on issues of liability and damages took place. At the close of the evidence on liability, the district court submitted four special interrogatories to the jury:

1. Did Long John Silver's and the Trade Councils enter into an agreement or combination to refuse to grant construction contracts to non-union builders, including Muko?

If your answer to question 1. is NO, go no further. If your answer to question 1. is YES, go on to question 2.

2. Was the effect of the agreement between Long John Silver's and the Trade Councils to impose a restraint on free competition beyond that which would follow from the elimination of competition based on wage rates and working conditions?

If your answer to question 2. is NO, go no further. If your answer to question 2. is YES, go on to question 3.

3. Was the agreement between Long John Silver's and the Trade Councils an unreasonable restraint of trade under the standards given you by the court in its instructions?

If your answer to question 3. is NO, go no further. If your answer to question 3. is YES, go on to question 4.

4. Did the agreement between Long John Silver's and the Trade Councils cause injury to the plaintiff in his business or property?

On February 17, 1981, the jury returned its verdict, answering "Yes" to Interrogatories 1 and 2 and "No" to Interrogatory 3. The jury thus found that the defendants had reached an agreement, outside the labor exemption, to exclude Muko as a competitor for Silver's construction work. Because the jury concluded that the agreement was not an unreasonable restraint of trade, however, the district court entered judgment for the defendants. The district court subsequently denied Muko's motion for a new trial and denied defendants' conditional motions for judgment n. o. v. This appeal followed.

II.

Muko challenges two aspects of the district court proceeding. First, it claims that the trial judge erred as a matter of law when he instructed the jury to apply the rule of reason, rather than the per se standard, to the agreement at issue. Second, it argues that, even if the district judge was correct in applying the rule of reason, he erred in his instructions on the relevant product market. We disagree with both contentions.*fn1

III.

A.

In the earlier in banc opinion in this case, we declined to decide the proper standard by which to measure any potential antitrust violation. We intimated, however, that traditional antitrust principles would govern such a determination by the district court:

The jury might have found a concerted refusal to deal with a class of contractors of which Muko is a member. But whether the evidence here is viewed as capable of sustaining a finding of a group boycott, to which a per se rule would apply, or some lesser restraint to which a rule of reason analysis might apply, it was sufficient to take Muko's case to the jury. We have no occasion on this record to rule on whether, after hearing the defendants' evidence as well, the court should instruct the jury that it should measure the agreement by rule of reason or per se standards.

609 F.2d at 1376 (footnote omitted).

In counseling that the level of antitrust inquiry depends upon the nature of the conduct alleged, even in the labor-antitrust context, Muko I reflected the approach taken by a panel of this Court in Consolidated Express, Inc. v. New York Shipping Association, 602 F.2d 494 (3d Cir. 1979), vacated and remanded on other grounds, 448 U.S. 902, 100 S. Ct. 3040, 65 L. Ed. 2d 1131 (1980) ("Conex "), a case decided several months prior to Muko I. There, the plaintiff was a freight consolidator whose business was threatened after defendants New York Shipping Association (an association of employers) and the longshoremen's union negotiated "Rules on Containers" and the so-called "Dublin Supplement" in response to the perceived threat to waterfront labor posed by technological change in the shipping industry. Conex claimed, inter alia, that the defendants' enforcement of the rules constituted a group boycott of the plaintiffs that was illegal per se under the Sherman Act.*fn2 We held, as an initial matter, "that the proper method of analysis is to determine the issue of nonstatutory labor exemption separately, ... and then to proceed with conventional antitrust scrutiny of the complaint." 602 F.2d at 522. In so holding, the Conex Court expressly rejected Professor Handler's view "that there be a full-scale rule of reason inquiry in every instance in which a non-exempt activity is claimed to be in violation of antitrust." Handler, Labor and Antitrust: A Bit of History, 40 Antitrust L.J. 233, 239-40 (1971). Pointing to United Mineworkers v. Pennington, 381 U.S. 657, 85 S. Ct. 1585, 14 L. Ed. 2d 626 (1965), and its companion case, Local 189, Amalgamated Meat Cutters v. Jewel Tea Co., 381 U.S. 676, 85 S. Ct. 1596, 14 L. Ed. 2d 640 (1965), Judge Gibbons concluded: "(T)he three groups of Justices in those cases, while they diverged widely on other issues, appear to have agreed that "settled antitrust principles' would be "appropriate and applicable' to activity found to be nonexempt.... Those "settled' principles include the per se rule, where the facts warrant its application." 602 F.2d at 522-23 (emphasis added).

We take this opportunity explicitly to reaffirm the holding in Conex, as reflected implicitly in Muko I. In so doing we adopt a middle position between that advocated by Professor Handler and that proposed by the appellant in the case at hand. While we agree with Professor Handler that the "factors to be considered in determining the existence of an antitrust exemption are separate and distinct from those bearing on the presence of an antitrust infraction," and that "once such conduct is deemed not exempt, it is incumbent upon the decisionmaker to consider the relative anticompetitiveness of the conduct before imposing antitrust liability," Handler & Zifchak, Collective Bargaining and the Antitrust Laws: The Emasculation of the Labor Exemption, 81 Colum.L.Rev. 459, 511 (1981), we do not share Professor Handler's view that union conduct necessarily "should be measured by the rule of reason in recognition of the peculiar labor relations context in which the restraint arises even if, in a nonlabor context, similar conduct might be per se unlawful." Id. at 510.*fn3 The mere fact that a labor union is one of the participants in an otherwise illegal combination should not preclude a determination that, in appropriate circumstances, the conduct is unreasonable per se. See, e.g., Allen Bradley Co. v. Local 3, International Brotherhood of Electrical Workers, 325 U.S. 797, 65 S. Ct. 1533, 89 L. Ed. 1939 (1945). The per se rule is, essentially, a short cut employed by a court in determining unreasonableness; as Professor Sullivan has taught, "the per se doctrine is precisely a special case of rule of reason analysis." L. Sullivan, Handbook of the Law of Antitrust (1977). See discussion in part III(B) infra. If, after extensive experience with a particular kind of union conduct, a court concludes that the conduct invariably restrains competition, it is unnecessary, in our view, for the court to engage in lengthy rule-of-reason analysis when the per se rule would yield identical results more efficiently and expeditiously.

It is important, however, to caution against mechanical or imprudent application of the per se rule in the labor context. A finding that particular union conduct has anticompetitive effects that do "not flow naturally from the elimination of competition over wages and working conditions," and hence is non-exempt under Connell, should not drive a court inexorably to the conclusion that the union has violated the antitrust laws. We thus cannot agree with Muko, who contends that every ...


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