The opinion of the court was delivered by: DEBEVOISE
The second amended complaint in this action, brought under Section 1 of the Sherman Act, 15 U.S.C. § 1, et seq., and the New Jersey Antitrust Act, N.J.S.A. 56:9-1, et seq., alleges a horizontal conspiracy to allocate exclusive distributor territories among the wholesalers of Anheuser-Busch ("A-B") and Miller Brewing Company ("Miller") malt beverage products in the State of New Jersey. Plaintiffs represent a certified class of New Jersey beer retailers. Defendants are distributors engaged in the business of selling A-B or Miller beer at wholesale to the plaintiff class of New Jersey retailers. The defendants which sold A-B beer are A-B/Newark; Crown Beer Distributors, Inc. ("Crown Beer"); Harrison Beverage Co. ("Harrison"); High Grade Beverage ("High Grade"); Konrad Beer Distributor, Inc. ("Konrad"); and Ritchie & Page Distributing Co., Inc. ("Ritchie & Page") (collectively referred to as "the A-B defendants"). Other than A-B/Newark, which is part of and operated by the Wholesale Operations Division of Anheuser-Busch, Inc., a Missouri corporation ("A-B/St. Louis"), the A-B defendants are all incorporated in New Jersey. The defendants which sold Miller beer are Garden State Beverage Co. ("Garden State"); Hub Beer Distributors, Inc. ("Hub Beer"); Hub City Distributors, Inc. ("Hub City"); The Kristen Distributing Co. ("Kristen"); MS&W Distributors, Inc. ("MS&W"); Point Pleasant Distributors, Inc. ("Point Pleasant"); South Jersey Distributors Corp. ("South Jersey"); Trip Distributors, Inc. ("Trip"); and Warren Distributing Co. ("Warren") (collectively referred to as "the Miller defendants").
The A-B defendants and the Miller defendants each jointly move for summary judgment.
II. PROCEDURAL BACKGROUND
Plaintiffs commenced this action in February 1983 by verified complaint against 70 malt beverage brewers and wholesale distributors alleging three separate categories of conspiracies to allocate territories and customers for the sale of beer at wholesale in New Jersey: 1) a horizontal conspiracy among the brewers; 2) a horizontal conspiracy among the distributors; and 3) vertical conspiracies among the brewers and their respective distributors.
On March 25, 1985, plaintiffs filed their Second Amended Verified Class Action Complaint and Demand for Jury Trial, in which plaintiffs allege:
The defendants have combined, conspired and agreed among themselves to allocate territories for the distribution of beer in the relevant geographic market, i.e., the State of New Jersey. Defendants' conduct is manifested in a system of "areas of responsibility" or "exclusive territories" by which defendants allocate the distribution of beer in New Jersey. The purpose and effect of said system is that no distributor sells beer outside of that distributor's exclusive territory; no member of the plaintiff class can buy any brand of beer from a distributor other than the exclusive distributor for that brand of beer in the area in which the class member is located.
Plaintiffs' theory encompasses three distinct alleged horizontal conspiracies: 1) a conspiracy among the A-B distributor defendants to allocate territories for the sale of A-B beer; 2) a conspiracy among the Miller distributor defendants to allocate territories for the sale of Miller beer; and 3) a joint conspiracy between the A-B and Miller defendants to allocate A-B and Miller territories.
The complaint alleges that the defendants' conspiracies had the purpose and effect of eliminating intrabrand and interbrand competition among the defendant distributors in the State of New Jersey. The complaint further asserts that defendants' conduct was intended to and has indeed directly and proximately caused the wholesale prices of beer in New Jersey to rise to artificially high levels, and, as a result, members of the plaintiff retailer class have been required to pay higher prices for the beer they have purchased and continue to purchase from the defendant distributors. Plaintiffs seek judgment for, inter alia : 1) treble damages, interest, costs of suit and attorneys' fees, and 2) a permanent injunction ordering the termination of any and all geographic market allocation and exclusive territory agreements among the defendants.
III. LEGAL AND FACTUAL FRAMEWORK
For at least 20 years prior to 1967 A-B/St. Louis assigned specified territories within which each of its New Jersey distributors were authorized to sell A-B malt beverage products. However, in 1967 the Supreme Court held that the vertical imposition of exclusive territories was per se illegal. United States v. Arnold, Schwinn & Co., 388 U.S. 365, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967). Under cases interpreting the scope of the per se rule enunciated in Schwinn, producers could not insist upon observance of territorial or customer restrictions on resale, but could assign territories within which distributors or retailers were expected to concentrate their primary marketing efforts. See, Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d 398, 406 (2d Cir.), cert. denied, 393 U.S. 938, 21 L. Ed. 2d 275, 89 S. Ct. 303 (1968); Colorado Pump & Supply Co. v. Febco, Inc., 472 F.2d 637, 639-40 (10th Cir.), cert. denied, 411 U.S. 987, 36 L. Ed. 2d 965, 93 S. Ct. 2274 (1973); but cf. Hobart Brothers Co. v. Malcolm T. Gilliland, Inc., 471 F.2d 894 (5th Cir. 1973).
In 1974, A-B/St. Louis and each of the A-B defendants (and all 950 A-B distributors nationwide) entered into Anheuser-Busch Wholesaler Equity Agreements ("the 1974 A-B Equity Agreements"). The 1974 A-B Equity Agreements assigned each distributor a primary marketing area in which it was responsible for sales, service and merchandizing of A-B products. The first paragraph of the agreements provided:
AREA OF PRIMARY RESPONSIBILITY:
The agreements specified that each wholesaler was to direct its efforts "to achieve maximum market representation of Anheuser-Busch products in Wholesaler's primary market area." The agreements also required distributors to satisfy certain sales and merchandizing standards. Failure to satisfy these standards in its area of primary responsibility ("APR") was grounds for termination of a distributor's relationship with A-B/St. Louis.
In 1977, the Supreme Court overruled Schwinn and held that vertical imposition of exclusive territories is not illegal per se. Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977). Under Sylvania, the legality of vertical restrictions is evaluated under a rule-of-reason analysis.
In December 1982, A-B/St. Louis entered into new agreements ("the 1982 A-B Equity Agreements") with each of its 950 wholesalers nationwide, including the New Jersey A-B wholesalers. The provisions of these agreements were identical for all A-B distributors (except where the territorial restrictions contained therein were prohibited by state law). Paragraph one of the agreements expressly provides for exclusive territories and states that a distributor is subject to termination if it engages in sales outside its exclusive territory. The 1982 A-B Equity Agreements are still in effect.
Miller began selling beer in New Jersey in the 1940's through existing distributors. Some of these distributors were then serving as distributors for other brewers who had already established territories for their distributors. Miller has assigned specific territories to all its distributors since it began doing business in New Jersey.
Prior to May 1983, Miller's contracts with its various distributors were different, each being entered into at a different time. The contracts of certain distributors allocated to each an "area of primary responsibility", while others specified a "territory." None of the contracts contained specific performance standards, yet each distributor's performance was subject to Miller's review. The contracts either required the generalized "best efforts" of the distributor or required the distributor to actively and aggressively market Miller beer within its defined territory.
Miller had various rights under the contracts to terminate them if the distributor's performance was unsatisfactory. Some were expressly terminable at will at any time, while several others had detailed termination provisions. None of the contracts restricted Miller's right to appoint another distributor in the same defined territory, and a number expressly set forth Miller's right to do so. Some expressly allowed Miller to "at any time, by written notice to Distributor, reduce Distributor's Area."
Miller's contract with defendant Kristen was slightly different from the others. In 1953, Miller and Kristen entered into a written distributorship agreement which provided in pertinent part:
The Distributor is to (a) sell and promote the sale of Miller High Life and such other of Miller's products as Miller may elect to market in the foregoing territory to the satisfaction of Miller; . . . and (g) not sell outside such territory or to other wholesalers without the prior written approval of Miller.
This territorial restriction was augmented by an allocation clause under which Miller was empowered to determine, in its sole discretion, the quantities of beer that it would supply to Kristen.
The A-B and Miller defendants each jointly contend that there is no evidence to support plaintiffs' claims regarding a joint A-B/Miller conspiracy. In their papers in opposition to defendants' summary judgment motions, plaintiffs acknowledge that they are not pursuing the joint conspiracy claims, having "concluded that the conspiracies among Anheuser-Busch distributor defendants and among Miller distributor defendants are separate." Accordingly, defendants are entitled to summary judgment on the previously alleged joint A-B/Miller conspiracy claims.
In addition, plaintiffs have not attempted to prove the existence of separate A-B distributor and Miller distributor conspiracies nor calculate damages for the time periods following the contractual imposition of exclusive territories in the 1982 A-B Equity Agreements and the 1983 Miller Distributor Agreements. Plaintiffs effectively concede that the relevant time period with regard to its conspiracy claims against the A-B defendants is February 15, 1979 (i.e., four years prior to the filing of their original complaint) through December 1982, and February 15, 1979 through May 1983 with regard to their claims against the Miller defendants. To the extent that plaintiffs' second amended complaint seeks damages arising from activities of the A-B and Miller defendants after these respective time periods, summary judgment is granted in favor of defendants. Insofar as plaintiffs are no longer claiming that any existing territorial arrangements are illegal, defendants are similarly entitled to summary judgment on plaintiffs' claims for a permanent injunction.
Section 1 of the Sherman Act outlaws "every contract, combination . . ., or conspiracy, in restraint of trade . . . ." 15 U.S.C. § 1. To recover for a violation of Section 1, plaintiffs have the burden of proving three essential elements: 1) an unlawful conspiracy among defendants in restraint of trade; 2) anticompetitive injury to plaintiffs proximately caused by defendants' illegal conduct; and 3) measurable damages which plaintiffs have sustained. American Bearing Co. v. Litton Industries, 729 F.2d 943, 948 (3d Cir.), cert. denied, 469 U.S. 854, 83 L. Ed. 2d 112, 105 S. Ct. 178 (1984). Defendants move for summary judgment on each of the above elements.
On its face, § 1 of the Sherman Act appears to bar any commercial agreement so long as it is "in restraint of trade." However, it has long been established that courts will not enforce the literal terms of § 1:
"Restraint is the very essence of every contract; read literally, § 1 would outlaw the entire body of private contract law.
National Society of Professional Engineers v. United States, 435 U.S. 679, 687-88, 55 L. Ed. 2d 637, 98 S. Ct. 1355 (1978). In lieu of the narrowest reading of § 1, the Supreme Court early on adopted a "rule-of-reason" analysis under which challenged business relationships are evaluated to determine whether they are "unreasonably restrictive of competitive conditions." Standard Oil Co. v. United States, 221 U.S. 1, 58, 55 L. Ed. 619, 31 S. Ct. 502 (1911). Over time, the Supreme Court has identified certain "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). As the Supreme Court stated in United States v. Topco Associates, 405 U.S. 596, 608, 31 L. Ed. 2d 515, 92 S. Ct. 1126 (1972);
One of the classic examples of a per se violation of § 1 is an agreement between competitors at the same level of the market structure to allocate territories in order to minimize competition.
There are certain unique factual and analytical idiosyncrasies which distinguish this case from others brought under § 1 of the Sherman Act. Antitrust conspiracy cases typically require a determination as to whether the challenged business conduct resulted from an illegal horizontal agreement or from the independent business judgment of the defendants. See e.g., First National Bank v. Cities Service Co., 391 U.S. 253, 20 L. Ed. 2d 569, 88 S. Ct. 1575 (1968); Theatre Enterprises v. Paramount Film Distributing Corp., 346 U.S. 537, 98 L. Ed. 273, 74 S. Ct. 257 (1954). It is axiomatic that "Section 1 of the Sherman Act prohibits only joint action; independent business decisions and actions cannot be the basis of a section 1 claim." Schoenkopf v. Brown & Williamson Tobacco Corp., 637 F.2d 205, 207 (3d Cir. 1980). In the present case defendants posit a third alternative explanation for their challenged conduct. The A-B defendants do not dispute that they did not compete with other wholesalers of the same brand of beer for retail accounts during the relevant damage periods. Indeed, it is agreed that there was a total absence of intrabrand competition among the A-B defendants wholesalers during the pertinent period. The A-B defendants contend that they confined their sales to their respective APRs or otherwise refrained from intrabrand competition with other wholesalers out of compliance with the corporate policies of A-B/St. Louis. While the Miller defendants do not concede the absence of intrabrand competition among New Jersey distributors of Miller beer products, they similarly assert that to the extent they did refrain from engaging in sales outside their APRs they did so in response to vertical direction from Miller.
Defendants assert that as early as the 1940's and continuing through to the present both Miller and A-B/St. Louis had strong corporate policies that their distributors not sell beer outside their assigned territories; that prior to the Schwinn decision the brewers vertically imposed exclusive territories on distributors of their beer nationwide; that after the Schwinn decision the brewers continued to emphasize to their distributors the importance of confining sales to their assigned territories; that the language of the agreements between the brewers and defendant wholesalers in effect prior to execution of the 1982 A-B Equity Agreements and the 1983 Miller Distributor Agreements reflected the continuing policy and expectation of the brewers that defendants confine their sales efforts to their assigned territories; and that defendants were fully aware of the brewers policies and expectations regarding out-of-territory sales. Defendants further contend that maintaining good relations with the brewers was critical to the long-term survival and success of the distributors' businesses; that with the exception of defendant Warren, whose sales of Miller beer represented approximately 50 % of its total sales between 1979 and 1982, sales of either A-B or Miller beer products represented the vast majority (80 % or more) of the sales of each of the defendant distributors; and that in addition to being defendants' major suppliers of beer, the brewers provided defendants with other substantial assistance which was important to the success of the defendants' businesses, including the extension of credit, assistance and instruction in marketing and merchandizing the brewers' products, and the allocation of point of sale materials such as clocks and neon signs. Defendants additionally assert that the very existence of the distributors as viable entities depended upon the brewers' continued favorable evaluation of the distributors' performance; that the brewers evaluated the performance of their distributors solely on the basis of the distributors' efforts within their assigned territories; that either A-B/St. Louis or Miller could terminate its relationship with a distributor if, in the brewer's judgment, the distributor was failing to satisfy its sales, servicing and promotional obligations within its assigned territory; and that the brewers could take other unilateral actions against a distributor, short of termination, for failing to adhere to the brewers' corporate policies and performance standards. Their actions, defendants contend, could effectively destroy a distributor's business, including withholding credit, restricting a distributor's allocation of beer, and/or appointing another distributor to service an existing distributor's territory. Lastly, defendants assert that each distributor had enormous investments in time, money and goodwill in being an A-B or Miller distributor; that each distributor understood that its long-term relationship with either A-B/St. Louis or Miller could be jeopardized by engaging in out-of-territory sales in contravention of the brewer's corporate policy; and that each distributor made a separate and independent business judgment that the short-term profits, if any, to be derived from out-of-territory sales were not worth the risk of losing its franchise to sell Miller or A-B beer. In short, defendants contend that restraints on intrabrand competition were the result of vertical direction from A-B/St. Louis and Miller, and not, as plaintiffs allege, the result of separate horizontal agreements between the A-B distributor defendants and the Miller distributor defendants.
As previously noted, plaintiffs abandoned their claims of unlawful vertical conspiracies between individual brewers and their respective distributors following the September 25, 1984 opinion denying plaintiffs' first motion for class certification. Therefore, the legality of vertical restraints on intrabrand competition is no longer an issue in this case. To the extent that there existed such brewer-initiated vertical restraints, no conclusions can be drawn with regard to the reasonableness of these restraints. Indeed, absent a finding that vertical restraints on intrabrand competition at the wholesale level are unreasonably restrictive of competitive conditions, any such restraints must be presumed lawful for purposes of the present motions.
Thus, in opposing defendants' motions for summary judgment, plaintiffs are placed in the ironic position of challenging the existence of vertical restraints on competition which had been the centerpiece of their antitrust allegations in the original complaint.
In order to prevail on their motions for summary judgment, defendants must establish that "there is no genuine issue as to any material fact and that [they are] entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). As the Supreme Court stated in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986):
[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis of its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact.
In order to satisfy their initial burden under Rule 56(c) in a case involving claims of illegal conspiracy under § 1 of the Sherman Act, it may be sufficient for defendants to present evidence reflecting their denial of the existence of or complicity in the alleged conspiracy and setting forth an innocent explanation of the challenged conduct. See e.g., Kreuzer v. Am. Academy of Periodontology, 237 U.S. App. D.C. 43, 735 F.2d 1479, 1488 (D.C. Cir. 1984).
Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). In the antitrust context, a plaintiff opposing a summary judgment motion must set forth specific facts showing a genuine issue of material fact as to whether defendants entered into an illegal conspiracy. Id. "The inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion." Id. at 1357, quoting from United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962). However, the Matsushita Court explained that in evaluating the evidence presented, "where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" 106 S. Ct. at 1356.
Plaintiffs in this case have presented no direct evidence of a horizontal conspiracy among the A-B defendants or the Miller defendants to restrain intrabrand competition. That is, there is no evidence of meetings, telephone calls or correspondence among the A-B or Miller defendants during or in which they discussed the allocation of exclusive territories.
In the absence of direct evidence of agreement among the defendants, a conspiracy can be established by circumstantial evidence sufficient to permit an inference of agreement.
Interstate Circuit, Inc. v. United States, 306 U.S. 208, 221, 83 L. Ed. 610, 59 S. Ct. 467 (1939). As the Third Circuit explained in Milgram v. Loew's, Inc., 192 F.2d 579, 583 (3d Cir. 1951):
In this modern era of increasing subtleties, it is rare indeed for a conspiracy to be proved by direct evidence. There is no dispute over the proposition that circumstantial evidence will sustain a finding of conspiracy.
There are, however, legal limits on the inferences which may be drawn from circumstantial evidence; "limits beyond which reasonable inference-drawing degenerates into groundless speculation." In re Japanese Electronic Products, 723 F.2d 238, 304 (3d Cir. 1983), rev'd on other grounds, Matsushita, supra.
The Supreme Court decision in First National Bank v. Cities Service Co., 391 U.S. 253, 20 L. Ed. 2d 569, 88 S. Ct. 1575 (1968) is instructive on this point. In Cities Service the plaintiff alleged that a number of oil company defendants had conspired to boycott the purchase of Iranian crude oil through him. Defendant Cities Service initially had negotiated with the plaintiff but ultimately purchased no oil through him despite the favorable terms of his offer. In opposition to a motion by Cities Service for summary judgment, plaintiff argued that the failure of Cities Service to purchase Iranian oil through him despite his attractive offer supported a reasonable inference of participation in a conspiracy sufficient to raise a question of fact for trial. The Supreme Court affirmed summary judgment against the plaintiff holding that
not only is the inference that Cities' failure to deal was the product of factors other than conspiracy at least equal to the inference that it was due to conspiracy, thus negating the probative force of the evidence showing such a failure, but the former inference is more probable.
In Matsushita, the Court further articulated the quality of evidence necessary to support a reasonable inference of conspiracy:
To survive a motion for summary judgment or for a directed verdict, a plaintiff seeking damages for a violation of § 1 must present evidence "that tends to exclude the possibility" that the alleged conspirators acted independently.
106 S. Ct. at 1357, quoting from Monsanto Co. v. Spray Rite Service Corp., 465 U.S. 752, 764, 104 S. Ct. 1464, 79 L. Ed. 2d 775 (1984). This does not mean, as the Miller defendants argue, that the district court should usurp the function of the jury by determining on summary judgment whether the inference of conspiracy is more probable than not. Rather, the court must examine the totality of the circumstantial evidence to determine whether there is sufficient unambiguous evidence from which a rational jury could make such a finding without resorting to rank speculation. See e.g., Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 116 (3d Cir. 1980), cert. denied, 451 U.S. 911, 68 L. Ed. 2d 300, 101 S. Ct. 1981 (1981).
Applying the Matsushita standard to the facts in this case is particularly problematic. The central issue in this case is whether restraints on intrabrand competition resulted from vertical direction from the brewers or horizontal agreement among defendant distributors of the A-B or Miller brands. The existence of vertical restraints on intrabrand competition among New Jersey beer wholesalers does not necessarily exclude the possibility that illegal horizontal restraints were simultaneously operating to restrict such competition. Restraints on intrabrand competition might plausibly be the result of both vertical direction from the brewers and horizontal agreement among the distributors. However, under the Matsushita summary judgment standard, plaintiffs have the burden of presenting a minimum quantum of unambiguous circumstantial evidence from which a jury could reasonably infer that the conduct which forms the basis of plaintiffs' § 1 claim (that is, the decision of A-B and Miller wholesalers to refrain from intrabrand competition in New Jersey) resulted from horizontal agreement among the wholesalers and not from independent business judgments on the part of each distributor to abide by the corporate policy of A-B/St. Louis or Miller. In other words, plaintiffs must present evidence which favors the inference that defendants were acting in conformity with a horizontal conspiracy not to compete and "tends to exclude the possibility" that they were merely responding to the vertical direction of the brewers. Matsushita, supra, 106 S. Ct. at 1357. Evidence of conduct which is equally consistent with brewer-initiated vertical restraints as with an illegal horizontal conspiracy will not suffice to create a triable issue for a jury. Id.
In lieu of direct evidence of conspiracy, plaintiffs rely on circumstantial evidence of consciously parallel business behavior to establish the existence of horizontal agreements among the A-B defendants and the Miller defendants. As the Supreme Court noted in Theatre Enterprises, "business behavior is admissible circumstantial evidence from which the fact finder may infer agreement." 346 U.S. at 540. Under the theory of conscious parallelism, a plaintiff must show 1) that the defendants' business behavior was parallel, and 2) that the defendants were conscious of each other's conduct and that awareness was an element in their decisional process. Schoenkopf, 637 F.2d at 208.
While having some tendency suggestive of concert of action, consciously parallel conduct standing alone is insufficient circumstantial evidence from which to infer an antitrust violation. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977), cert. denied, 434 U.S. 1086, 55 L. Ed. 2d 791, 98 S. Ct. 1280 (1978). Before such an inference may be drawn a plaintiff must also show 1) that the defendants acted in contradiction of their economic interests, and 2) that the defendants had a common motive to enter into an agreement. Venzie Corp. v. United States Mineral Products Co., Inc., 521 F.2d 1309, 1314 (3d Cir. 1975). Furthermore, in order to survive a summary judgment motion under the standard articulated in Matsushita, supra, the circumstantial evidence offered by plaintiffs to satisfy the above four elements of proof must "make the inference of rational, independent choice less attractive than that of concerted action." Bogosian, 561 F.2d at 446.
1. Circumstantial Evidence of an A-B Distributor Conspiracy3
There is no dispute that the A-B defendants made virtually no sales of A-B beer outside their brewer-assigned APRs during the relevant period. Indeed, there is no evidence that A-B/Newark, Crown or Harrison ever sold A-B beer outside of their respective APRs. Certainly, to the extent that defendants confined their sales to the territories assigned to them by A-B/St. Louis, this parallel conduct is perfectly consistent with the inference that restraints on intrabrand competition were vertically directed.
Plaintiffs cite evidence of certain isolated instances in which particular A-B distributors sold A-B beer outside their APRs, and argue that this evidence supports the inference that territories were established by horizontal agreement among the wholesalers and not by vertical direction from the brewers. Plaintiffs have presented evidence of only three such instances.
Plaintiffs also cite evidence that Konrad serviced 17 retail accounts along Route 73 in Mt. Laurel Township in southern Burlington County which were located in the APR assigned to Ritchie & Page in its 1974 Equity Agreement with A-B/St. Louis. In 1975, Ritchie & Page inquired of A-B/St. Louis as to whether it should service two new accounts in this area. Apparently, Ritchie & Page did not challenge Konrad's right to sell A-B beer to the 15 other accounts that Konrad was already servicing in the area. In a letter to Konrad and Ritchie & Page dated April 30, 1975, A-B/St. Louis stated that "we have no right, nor do we assume the right to settle your area dispute." Plaintiffs contend that this language confirms that exclusive territories were not vertically directed. A careful reading of the entire letter, however, belies this contention.
The April 30, 1975 letter is clearly crafted to avoid the appearance of imposing exclusive territories on its distributors in violation of the antitrust standard set forth in the Schwinn decision. The final paragraph of the letter reminds the distributors that "the law does not allow exclusivity, and Anheuser-Busch, Incorporated cannot and will not undertake any action which could be interpreted as advocating exclusivity." Nevertheless, in preceding passages A-B/St. Louis notes that Konrad had been "servicing the area for a number of years" and expressed its satisfaction with the existing situation. The letter further states that A-B/St. Louis was prepared to delete the area from the APR of Ritchie & Page and add it to the APR of Konrad. Thus, while A-B/St. Louis purportedly refused to settle the "area dispute", its preference for maintaining the status quo was unequivocally communicated to the distributors. Furthermore, the very fact that Ritchie & Page appealed to A-B/St. Louis for a clarification of wholesaler territories undermines plaintiffs' claim of a horizontal conspiracy. If retail accounts were being allocated by agreement among the wholesalers, there would be no reason for any wholesaler to seek such a clarification from the brewer.
Plaintiffs further rely on evidence that Ritchie & Page serviced at least one active retail account in Allentown, New Jersey during the entire period of its 1974 Equity Agreement with A-B/St. Louis. Richard Woodruff, New Jersey District Manager for A-B/St. Louis, acknowledged in deposition testimony that during this period Allentown was situated in the APR of Crown.
Evidence that certain A-B wholesalers sold A-B products to retail accounts outside their brewer-assigned APRs without objection from the distributors in whose APRs these accounts were located has some tendency suggestive or horizontal agreement among the wholesalers. However, the probative force of the evidence presented by plaintiffs of such extra-territorial sales by A-B wholesalers is extraordinarily weak. This evidence reflects out-of-territory sales to no more than 20 of approximately 12,000 retail accounts in New Jersey. The majority of these accounts are located near the boundaries of the brewer-assigned wholesaler territories. The A-B defendants point out that A-B/St. Louis designated wholesaler APRs by cutting up a map of New Jersey and appending these map cut-outs as an exhibit to its 1974 and 1982 Equity Agreements with each New Jersey distributor. These cut-outs do not clearly delineate each municipality, street or highway situated in each distributor's territory. Thus, the fact that several wholesalers historically serviced a small number of retail accounts located along the boundary of their map areas which actually fell within the adjoining territory of another wholesaler can reasonably be attributed to the imprecision of the method by which A-B/St. Louis designated wholesaler territories. For example, in the 1982 Equity Agreement between A-B/St. Louis and Ritchie & Page the map cut-out of the distributor's APR included the town of Allentown but the map had been cut in such a way as to exclude the name of the town. In a letter to A-B/St. Louis dated September 28, 1982, Ritchie & Page sought to clarify that it had serviced the Allentown area since prior to 1963 and that the two accounts in that town were within its territory.
As further evidence of defendants' parallel business conduct arising out of the alleged horizontal conspiracy, plaintiffs cite to phone conversations between Louis Natale of Ritchie & Page and Herb Konrad of Konrad and other of the A-B defendants during the summer of 1982 relating to the sale of A-B beer in New Jersey by International Beverage Company ("International Beverage"). International Beverage was a so-called "transshipper" which obtained A-B and other brands of beer from sources in the State of New York and "transshipped" them to retailers located throughout New Jersey at prices lower than those of the defendants. Plaintiffs assert that Natale and Konrad made these calls "to express their displeasure at discounted sales which they feared would cut into their monopoly prices." The record does not support this assertion.
Although Mr. Konrad acknowledged in deposition testimony that he was personally concerned that sales of A-B beer by International Beverage might cut into Konrad's sales, neither Mr. Konrad nor Mr. Natale recalled discussing International Beverages prices in their phone conversations with other A-B wholesalers. It is apparent from his deposition testimony that Mr. Konrad was concerned that International Beverage was not a brewer-authorized distributor of A-B beer and was therefor operating in violation of New Jersey alcoholic beverage law. In fact, Mr. Konrad testified that prior to contacting other wholesalers he called the Director of the New Jersey Division of Alcohol Beverage Control ("ABC") to report International Beverage's activities. According to Mr. Konrad, the ABC held hearings on the matter, and subsequently directed International Beverage to discontinue its sales of A-B beer in New Jersey. Mr. Natale testified that in his phone conversations with other A-B wholesalers he merely expressed his concern that International Beverage's sales might compromise the product quality of the A-B brand in New Jersey. Concern over the legality of International Beverage's activities and concern over the maintenance of A-B product quality are undeniably legitimate subjects of communication among the A-B defendants. At best, the evidence of phone conversations between the A-B defendants merely demonstrates an opportunity for formation of an unlawful conspiracy. Such evidence standing alone is insufficient to defeat summary judgment. Venzie, 521 F.2d at 1313. Furthermore, as the Third Circuit noted in Venzie :
While the jury [would be] free to disregard the defendants' testimony that no agreement of any kind was formulated during the course of these contacts, mere disbelief could not rise to the level of positive proof of agreement to sustain plaintiffs' burden of proving conspiracy.
b. Knowledge of Parallel Conduct
There is no dispute that each of the A-B defendants knew that the other A-B wholesalers in the state were limiting sales to particular territories. They were each familiar with the boundaries of neighboring territories, aware that they had none of the same customers for A-B beer as any other A-B wholesaler, and fully expected that the other A-B wholesalers would not attempt to compete for customers within another wholesaler's territory. Defendants concede these facts and rightly observe that the same facts would be present whether the wholesalers were agreeing among themselves to restrict intrabrand competition or were merely abiding by the policy of A-B/St. Louis against extra-territorial sales.
Plaintiffs further cite conversations between High Grade and other A-B wholesalers regarding High Grade's so-called "convenience sales" to retailers outside its APR when other distributors were closed for business or were otherwise unable to service the accounts. Mr. De Marco of High Grade testified that High Grade would attempt to contact the wholesalers in whose territories the retailers were located prior to or soon after making such sales. Plaintiffs argue that the implied purpose of these calls was to seek permission to make the sales or to disclaim any intent to invade the neighboring wholesaler's territory, and that such calls would only be necessary if High Grade were party to a horizontal agreement to honor the exclusive territories of neighboring wholesalers. This argument, however, finds no support in the record. In fact, Mr. De Marco unequivocally testified that the purpose of the calls was to inform the neighboring distributor that a retailer in its territory was experiencing an inventory shortage.
While evidence of the exchange of beer at cost among the A-B defendants and High Grade's convenience sales to retailers outside its APR tends to show that the A-B defendants recognized and respected the exclusivity of each other's territories, this conduct does not favor the inference of a horizontal conspiracy. Cooperation of this sort among A-B wholesalers for the purpose of assuring that retailers receive an uninterrupted supply of A-B beer is certainly in the interest of the brewer and is entirely consistent with a brewer-directed system of restraints on intrabrand competition. It may be true, as plaintiffs argue, that this level of cooperation among distributors would not exist in an unrestricted competitive environment. In such an environment a business enterprise might be expected to act decisively to exploit the inability of a competitor to adequately service its customers. This truism, however, does not advance plaintiffs' position. As previously stated, the question in this case is not whether defendants were operating in a truly competitive manner. Defendants concede the absence of competition among distributors of A-B beer, and evidence relating to the exchange of beer at cost and extra-territorial convenience sales merely highlights this admitted fact.
In sum, plaintiffs' evidence of defendants' parallel business conduct succeeds only in proving that which is uncontested. Plaintiffs have established that the A-B defendants uniformly and consciously refrained from competing among themselves for retail accounts. However, evidence of this parallel business behavior does nothing to assist plaintiffs in satisfying their burden under Matsushita.
c. Conduct Against Economic Self-interest
In a competitive business environment, a business enterprise is presumed always to act to further its self-interest. It logically follows that business behavior which is contrary to self-interest would be rational only if business entities which would otherwise be in competition with one another act in a similar manner. Thus, parallel action by putative competitors in apparent contradiction of their individual self-interest strengthens the inference of conspiracy. See, generally, Areeda, Antitrust Law para. 1415 (1986).
Plaintiffs assert that the refusal of defendants to sell A-B beer outside their A-B territories cannot be justified by inventory or capacity problems insofar as most of the defendants admit that they either had excess capacity during portions of the relevant time period or had in the past expanded their operations to meet any increase in sales they could obtain. In sum, plaintiffs charge that the failure of the A-B defendants to take advantage of profitable sales opportunities outside their APRs was demonstrably contrary to their self-interest and would be economically rational only if they had agreed among themselves to uniformly refrain from engaging in such extra-territorial sales.
While conceding that they could have derived short-term profits from certain sales of A-B brands outside their respective APRs, the A-B defendants insist that their refusal to engage in such sales is entirely consistent with their long-term economic interests. In particular, the A-B defendants contend that they would have risked losing their franchise to sell A-B beer by contravening the brewer's corporate policy against extra-territorial sales. Thus, their interest in maintaining a long-term relationship with A-B/St. Louis was of greater economic importance to them than any short-term profit they might have derived from sales of A-B beer outside of their respective territories. As Leonard Hollander of Harrison testified:
I was restricted to stay in my marketing area and put all my efforts, all my promotions, all my merchandising within that area. Anheuser-Busch felt very strongly about a wholesaler taking care of his marketing area, or he could be -- even though the sales were up, if you did not do the merchandising, servicing the customers, selling, you were subject to be relieved as a wholesaler. And I, for one, was not going to test it.
Ralph Rapisardi of Crown similarly stated by way of affidavit:
That practice [of limiting sales to the brewer-assigned territory] is strictly rooted in obedience to A-B corporate policy and sound business and marketing policy. There is no doubt in my mind that if Crown or any other distributor did not adhere to the directives of A-B or deviate[d] from the corporate policy of distributing beer only within assigned geographic territories, that distributor would risk losing its distributorship. The investment in an A-B distributorship is very substantial. I have never, and would never take the chance of losing my distributorship by selling outside my territory . . . in complete disregard of the corporate policy of A-B which I have known since 1948.
A business's refusal to enter a transaction, even a transaction with potential for a substantial profit, cannot support an inference that it acted in contradiction of its own economic interests in the face of substantial unrebutted and unimpeached evidence that its refusal was consistent with its own best interests.
See also, Venzie, 521 F.2d at 1314-15. In his treatise on antitrust law, Prof. Areeda cautions that courts "must not characterize a firm's sacrifice of short-run interest in favor of long-run interest as contrary to its self-interest." Areeda, supra, at para. 1415e. Of particular relevance to this case, Prof. Areeda highlights "the possibility that one might refrain from taking an otherwise profitable step because someone else has the power to make it unacceptably costly . . . Because the pain that another party can inflict exceeds the gain from doing what the actor would otherwise like to do, inaction serves his self-interest." Id. at para. 1415f; see also, Cities Service, 391 U.S. at 278-79.
Plaintiffs argue that the A-B defendants' claim that their long-term economic interests were best served by complying with the policy of A-B/St. Louis favoring territorial exclusivity finds no evidentiary support in the record and merely serves as a pretext for an illegal horizontal conspiracy. There is no question that an antitrust defendant's assertion that its conduct was intended to advance its own economic interests without regard to whether its competitors acted in a similar manner should not be accepted on faith. See e.g., Milgram, 192 F.2d at 584-85. Prof. Areeda notes that "if the defendant thought that his behavior served his own interests without regard to the behavior of others, the tribunal has a complete explanation for his conduct and thus no occasion to search for the other explanation of conspiracy." However, he is quick to point out that the self-interest issue does not turn on self-serving statements of a defendant's professed state of mind. "Of course, an incredible claim of self-interest need not be believed." Areeda, supra. at para. 1415b.
The credibility of a defendant's claim of self-interest largely depends on the factual circumstances which gave rise to the challenged conduct. In practice those courts which have rejected conspiracy claims in part because the challenged conduct was consistent with a defendant's independent economic interests have required at least some factual basis to support this conclusion. See, Cities Service, 391 U.S. at 278-79; Tose, 648 F.2d at 894-95. As a general rule, a conclusion that challenged conduct is the product not of a conspiracy but of an independent business decision consistent with a defendant's economic self-interest is fully warranted if the conduct in question appears to be a reasonable or rational response to a particular business situation or market condition.
In the present case, the validity or rationality of the independent business reason for their conduct proffered by the A-B defendants depends in large measure on the quality of evidence relating to three critical questions: 1) Did A-B/St. Louis have a corporate policy against sales by distributors of its beer outside their assigned APRs; 2) How effectively was this policy communicated to the A-B defendants, and 3) Was the defendants' purported fear of brewer sanctions for deviating from this policy justified under the circumstances?
There is no dispute that from the time it first began selling its products in New Jersey A-B/St. Louis has assigned specific sales territories to its New Jersey distributors. As will be developed below, the record firmly establishes that A-B/St. Louis has long maintained a corporate policy favoring the exclusivity of these territories. August A. Busch, III, Chairman and Chief Executive Officer of A-B/St. Louis, and Richard H. Woodruff, A-B/St. Louis' District Manager for New Jersey, each testified as to the precise nature of this policy and the importance of this policy to the brewer. In further support of their present joint summary judgment motion, the A-B defendants have submitted the affidavits of Ralph J. Rapisardi, President and General Manager of Crown, and Bernard F. McGarry, Sales Manager of Harrison, and the certification of Thomas J. Ryan, Chief Executive Officer of Ritchie & Page. Each of these individuals had been employed by A-B/St. Louis for many years prior to becoming affiliated with the distributors they now represent. At various times, they had each held key managerial positions with A-B/St. Louis in which they were responsible for monitoring the wholesale distribution and sales practices of distributors of A-B products in certain state, division, regional and/or national markets, and through which they each became intimately familiar with the overall marketing philosophy of A-B/St. Louis and its policy regarding the territories it designated to its distributors. Each categorically asserts in his affidavit or certification that the company policy of A-B/St. Louis was that each A-B distributor should stay within its assigned territory and concentrate its efforts on maximizing the sale of A-B brands to retail accounts in that geographic area.
The long-standing nature of this policy is reflected in letters from A-B/St. Louis received by Harrison in 1956 when Harrison first became an A-B distributor and again in 1958 when it was assigned additional territory by A-B/St. Louis. Attached to each letter was a map which the letters described as "outlining exactly the territory you will service with Anheuser-Busch products." Dr. John Jordan, one of the economic experts retained by plaintiffs, acknowledged in deposition testimony that in this context "exactly" meant "just what the territory is." no more and no less. The territory assigned to Harrison has not changed since 1958, and there is no evidence that Harrison ever sold A-B products outside the territory assigned to it by A-B/St. Louis.
The existence of an A-B/St. Louis corporate policy favoring the exclusivity of distributor territories is most strikingly revealed in the marketing practices of A-B/Newark. By virtue of the fact that it was wholly owned and operated by A-B/St. Louis, the operating policies and practices of A-B/Newark were dictated directly by A-B/St. Louis through its Wholesale Operations Division. As employees of A-B/St. Louis, the A-B/Newark management was directed by A-B/St. Louis to adhere to company policy and confine its sales to the marketing area assigned to it by A-B/St. Louis. William Riesenbeck, a former Eastern Region Manager of A-B/St. Louis' Wholesale Operations Division, testified that "it's just a very strong policy of the company, you do not sell outside the territory, period." Raymond Arps, Marketing Manager of A-B/Newark, further explained during his oral deposition:
A: . . . it's not my decision to say whether we should have a policy or not. I'm an employee of the company. They have a corporate policy. I adhere to that policy. I don't get paid to make the decisions as to whether we should have that policy or shouldn't have it.
Q: All right. Who does make the policy?
A: The policy is Anheuser-Busch corporate.
Richard Woodruff, who was first hired by A-B/St. Louis in 1948 as a salesman for the predecessor of A-B/Newark, stated by way of affidavit that A-B/Newark has always followed the corporate policy of A-B/St. Louis and sold only within its marketing area. Plaintiffs have offered no evidence to contravert the above statements and testimony regarding the distribution practices of A-B/Newark and its adherence to A-B/St. Louis corporate policy.
Furthermore, the import of the contractual disclaimer of exclusivity relied on by the plaintiffs cannot be fully apprehended without viewing the 1974 A-B Equity Agreements in the context of applicable antitrust law in effect at the time these agreements were executed. The agreements were adopted by A-B/St. Louis when the Schwinn per se standard was in effect. Under Schwinn, A-B/St. Louis could not contractually impose exclusive sales territories on its distributors. 388 U.S. at 379. However, it could consistent with the narrow interpretation of Schwinn adopted by several courts of appeal assign territories within which its distributors would be expected to concentrate their primary marketing efforts, see e.g., Colorado Pump, 472 F.2d at 639-40, and arguably could by non-coercive means attempt to encourage and persuade the distributors not to sell outside these territories. The 1974 A-B Equity Agreement appears to reflect a calculated attempt by A-B/St. Louis to advance a strong policy preference for the exclusivity of distributor territories without overstepping the bounds of existing antitrust law.
There is also considerable evidence that A-B/St. Louis actively communicated its policy favoring exclusivity to distributors of its beer nationwide, and that the A-B defendant distributors in particular were fully aware of the brewer's policy.
As an initial matter, the A-B defendants uniformly believed that the 1974 A-B Equity Agreement clearly conveyed the brewer's policy and expectation that the distributors confine sales to their assigned territories. Herbert Konrad of Konrad testified:
If you look at the total document, the whole document points or focuses on your [area of primary responsibility]. So, . . . I came to the conclusion that they did not want me to sell outside my [APR].
Leonard Hollander of Harrison similarly stated that he felt restricted by his equity agreement with A-B/St. Louis to stay in his assigned marketing area and put all his efforts, all his promotions, all his merchandizing within that area. In view of the contractual language emphasizing the importance of maximizing sales within their assigned territories, it was certainly not unreasonable for the A-B defendants to conclude that A-B/St. Louis expected them to confine their sales to these assigned areas.
There is also ample evidence that the policy preference reflected in the 1974 A-B Equity Agreements was reinforced by other oral and written communications. August Busch, III testified:
A memorandum from Mr. Busch to all A-B distributors dated October 13, 1981 confirmed that A-B/St. Louis was opposed to distributors selling A-B products outside their assigned areas and urged distributors to refrain from such sales. The memorandum further noted that this position had been communicated to the distributors "on a number of occasions in the past."
Richard Woodruff also testified that part of his duties as A-B District Manager for New Jersey included communicating to the A-B defendants the policy of A-B/St. Louis concerning areas of primary responsibility. He noted that he did not discuss the subject of extra-territorial sales with the A-B defendants on a regular basis because the distributors were complying with A-B/St. Louis policy and confining their sales to their respective APRs. Nevertheless, he stated that on those occasions when the issue did arise, "I would ...