Water Craft Management LLC v. Mercury Marine , 457 F.3d 484 ( 2006 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
July 25, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 04-31139
Water Craft Management LLC,
Douglas Wayne Glascock,
Nick A. Martrain,
Plaintiffs-Appellants-Cross-Appellees,
versus
Mercury Marine, Etc, et al,
Defendants,
Mercury Marine, A division
of Brunswick Corp.,
Defendant-Appellee-Cross-Appellant.
Appeals from the United States District Court
for the Middle District of Louisiana
Before GARWOOD, DAVIS and GARZA, Circuit Judges.
GARWOOD, Circuit Judge:
Appellants, Water Craft Management LLC, d/b/a LA Boating
Centre (Water Craft) and its members Douglas Wayne Glascock and
Nick A. Martrain, sued appellee Mercury Marine alleging, inter
alia, secondary-line price discrimination in violation of sections
2(a) and 4 of the Clayton Act, as amended by the Robinson-Patman
Act, 15 U.S.C. 13(a), 15 (1936). Following a bench trial, the
district court entered judgment in favor of Mercury on their
Robinson-Patman Act claim.1 We affirm.
FACTS AND PROCEEDINGS BELOW
Water Craft was a Mercury Marine retail dealership selling
Mercury Marine outboard motors in Baton Rouge, Louisiana. It was
founded on November 25, 1996, by its two members, Nick Martrain and
Douglas Glascock, and went out of business roughly two years later,
on December 7, 1998. Water Craft then filed this suit against one
of its suppliers, Mercury Marine, for secondary-line price
discrimination2 in violation of sections 2(a) and 4 of the Clayton
1
In the district court the suit included several other
claims and counter-claims which are not properly before this
court, including state-law claims for breach of contract,
detrimental reliance, fraud, and misrepresentation and five
counter-claims for unpaid accounts. The district court
bifurcated these claims, ruling only on liability and reserving
the damages question for a later trial. Then, citing Rule 54(b),
the district court purported to certify for appeal its ruling on
liability. Because Rule 54(b) permits the certification of final
judgments only, we ruled ineffective the certification and
ordered dismissed all appeals and cross-appeals relating to the
state law claims. See Order of April 28, 2006, as modified by
Order of May 2, 2006. These state-law claims remain pending
before the district court; only the Robinson-Patman Act claim is
before us on this appeal. Sidag Aktiengesellschaft v. Smoked
Foods Products Co., Inc., 813 F.2d 81, 84 (5th Cir. 1987); see
also Wright and Miller § 2656.
2
In price discrimination cases, courts analyze the
competitive injury component at three basic levels: (1)
primary-line effects, i.e. injury to other sellers; (2)
secondary-line effects, i.e. injury to purchasers of a certain
seller; and (3) tertiary-line effects, i.e. injury to the
customers of those purchasers. A secondary-line violation occurs
when a large purchaser uses its purchasing power to obtain lower
2
Act, as amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(a), 15
(1936). Section 2(a) provides, in pertinent part, as follows:
It shall be unlawful for any person engaged in commerce,
in the course of such commerce, either directly or
indirectly, to discriminate in price between different
purchasers of commodities of like grade and quality . .
. where the effect of such discrimination may be
substantially to lessen competition or tend to create a
monopoly in any line of commerce, or to injure, destroy,
or prevent competition with any person who either grants
or knowingly receives the benefit of such discrimination,
or with customers of either of them . . . .
15 U.S.C. § 13(a).
Water Craft alleges that Mercury Marine discriminated in favor
of Water Craft’s largest competitor, Travis Boating Center
(“Travis”), by offering Travis discounts on motors that far
exceeded the discounts available to Water Craft or other Mercury
retail dealerships in the Baton Rouge market. Mercury does not
dispute the fact that Travis got a better deal on motors than Water
Craft, but Mercury explains that it was forced to offer these lower
prices to Travis in order to compete with the Outboard Marine
Corporation (“OMC”),3 one of Mercury’s principal competitors.
Before Mercury began selling motors to Travis, Mercury was
losing market share to OMC in the gulf coast region because the
prices from a manufacturer, allowing it to undersell its
competitors. Eximco, Inc. v. Trane, 737 F.2d 505, 515 (5th
Cir.1984).
3
At the time, OMC manufactured Johnson and Evinrude outboard
motors.
3
Travis chain, which until October of 1998 had a sales agreement
with OMC but not with Mercury, was rapidly expanding, sometimes
buying out Mercury dealerships and converting them to Travis retail
stores which did not sell Mercury products. During his testimony
at trial, Jeffery Behan, a marketing research director at Mercury,
explained that Mercury approached Travis several times in an effort
to sign them up, but was rebuffed because their prices were not
competitive with OMC’s.
With this explanation for its price discrimination, Mercury
invoked the “meeting competition defense,” an affirmative defense
provided under section 2(b) of the Robinson-Patman Act that permits
a seller to rebut a prima facie case of discrimination by “showing
that his lower price . . . was made in good faith to meet an
equally low price of a competitor . . . .” 15 U.S.C.A. § 13(b)4
The district court, after a bench trial, agreed that the
meeting competition defense applies and entered judgment in favor
4
Section 2(b) provides that “[u]pon proof being made, at any
hearing on a complaint under this section, that there has been
discrimination in price or services or facilities furnished, the
burden of rebutting the prima-facie case thus made by showing
justification shall be upon the person charged with a violation
of this section, and unless justification shall be affirmatively
shown, the Commission is authorized to issue an order terminating
the discrimination: Provided, however, That nothing herein
contained shall prevent a seller rebutting the prima-facie case
thus made by showing that his lower price or the furnishing of
services or facilities to any purchaser or purchasers was made in
good faith to meet an equally low price of a competitor, or the
services or facilities furnished by a competitor.” 15 U.S.C.A. §
13(b).
4
of Mercury, finding, inter alia,5 that “Mercury has proved the
required elements of the meeting competition defense by more than
a preponderance of the evidence.” Water Craft appeals from that
judgment.
DISCUSSION
Water Craft argues that the district court erred in applying
the meeting competition defense for two reasons. First, in their
brief to this court, Water Craft challenges the district court’s
factual finding that Mercury’s price discrimination was a good
faith response to OMC’s lower prices. Second, in a theory not
advanced until oral argument, Water Craft challenges the district
court’s legal determination that the meeting competition defense
applies even though Mercury fell short of actually meeting OMC’s
low prices.
“The standard of review for a bench trial is well established:
findings of fact are reviewed for clear error and legal issues are
reviewed de novo.” In re Mid-South Towing Co., 418 F.3d 526, 531
(5th Cir. 2005). Clear error exists if (1) the findings are without
substantial evidence to support them, (2) the court misapprehended
the effect of the evidence, and (3) although there is evidence
which if credible would be substantial, the force and effect of the
5
The district court also ruled that Water Craft had failed
to prove its prima facie case under § 2(a), but because we affirm
on the basis of the meeting competition defense, we need not
address these other rulings.
5
testimony, considered as a whole, convinces the court that the
findings are so against the preponderance of credible testimony
that they do not reflect or represent the truth and right of the
case. Moorhead v. Mitsubishi Aircraft Int'l, Inc., 828 F.2d 278,
283 (5th Cir. 1987). Reversal for clear error is warranted only if
the court has “a definite and firm conviction that a mistake has
been committed.” Canal Barge Co. v. Torco Oil Co., 220 F.3d 370,
375 (5th Cir. 2000).
We find Water Craft’s first argument unpersuasive and hold
that the district court did not clearly err in finding that
Mercury’s lower pricing to Travis was made in a good faith attempt
to meet OMC’s prices. The Robinson-Patman Act was passed in
response to the rapid growth of chain stores, which, by exploiting
the efficiencies of centralization, were able to threaten the
existence of small, independent retailers. Great Atlantic & Pacific
Tea Co., Inc. v. F. T. C., 99 S.Ct. 925, 930–31 (1979); see also
S.Res. 224, 70th Cong., 1st Sess. (directing the Federal Trade
Commission to investigate and report to it on chain-store
operators); RICHARD A. POSNER, THE ROBINSON-PATMAN ACT 26 (calling the Act
“the high-water mark of the anti-chain-store movement”). However,
“Congress did not seek by the Robinson-Patman Act either to abolish
competition or so radically to curtail it that a seller would have
no substantial right of self-defense against a price raid by a
competitor.” Standard Oil Co. v. FTC, 71 S.Ct. 240, 249 (1951).
6
To this end, as noted above, it is an absolute defense to liability
under the Robinson-Patman act that the price discrimination is the
result of price concessions made “in good faith for the purpose of
meeting the competitor’s price.” Falls City Industries, Inc. v.
Vanco Beverage Inc., 103 S.Ct. 1282, 1291 (1983); Federal Trade
Commission v. Sun Oil Company, 83 S.Ct. 358 (1963).
Our focus, then, is on Mercury’s motivation for
discriminating, since “[a] good-faith belief, rather than absolute
certainty, that a price concession is being offered to meet an
equally low price offered by a competitor is sufficient to satisfy
the § 2(b) defense.” United States v. United States Gypsum Co., 98
S.Ct. 2864, 2881 (1978). Furthermore, the Court has emphasized
that the concept of good faith, which is at the heart of the
meeting competition defense, is “flexible and pragmatic, not
technical or doctrinaire.” Id. at 2864. Indeed, “[r]igid rules
and inflexible absolutes are especially inappropriate in dealing
with the § 2(b) defense; the facts and circumstances of the
particular case; not abstract theories or remote conjectures,
should govern its interpretation and application.” Id.
Some guidelines, however, do emerge from the Supreme Court
opinions. In United States Gypsum, for example, the Court
sustained a meeting competition defense, holding that although
“casual reliance on uncorroborated reports of buyers or sales
representatives without further investigation may not . . . be
7
sufficient to make the requisite showing of good faith,” the
defense “can be satisfied by efforts falling short of interseller
verification . . . .” Id. at 2881-82. The Court then identified
certain indicia of good faith that are relevant to determining
whether the meeting competition defense should apply; among these
are (1) whether the seller “had received reports of similar
discounts from other customers”; (2) whether the seller “was
threatened with a termination of purchases if the discount were not
met”; (3) whether the seller made “[e]fforts to corroborate the
reported discount by seeking documentary evidence or by appraising
its reasonableness in terms of available market data”; and (4)
whether the seller had “past experience with the particular buyer
in question.” United States Gypsum Co., 98 S.Ct. at 2882.
The Court applied this good-faith checklist one year later in
Great Atlantic & Pacific Tea Co., supra, holding that a seller,
Borden, was entitled to the meeting competition defense, and that
the buyer, A&P, who faced derivative liability under the Act for
having demanded a discriminatorily low price, was also so entitled.
In that case, after Borden submitted its first bid to A&P, a long-
standing customer, the A&P buyer responded, “I have a [competing]
bid in my pocket. You [Borden] people are so far out of line it is
not even funny.” Id., 99 S.Ct. at 929. The A&P buyer then warned
Borden that it was in danger of losing its business in the Chicago
area unless Borden came up with a better offer. When Borden asked
8
A&P for details about the competing offer, it was refused. Even
though Borden’s eventual winning offer was actually below the
competing offer, the Court ruled that Borden had adequately
established its good faith. First, the Court noted, “the source of
the information was a person . . . who had personal knowledge of
the competing bid.” Id., 99 S.Ct. at 935 n.17. Second, “Borden
attempted to investigate by asking A&P for more information about
the competing bid.” Id. Finally, “Borden was faced with a credible
threat of a termination of purchases by A&P if it did not make a
second offer.” Id.Later in Falls City, the Court again sustained a meeting
competition defense, observing that “the defense requires that . .
. the lower price must actually have been a good-faith response to
that competing low price.” Id., 103 S.Ct. at 1291. The Falls City
Court then addressed a matter relevant here, holding that “section
2(b) . . . does not distinguish between one who meets a
competitor’s lower price to retain an old customer and one who
meets a competitor’s lower price in an attempt to gain new
customers.” Id. at 1294.
Under the circumstances of this case, Mercury has shown the
existence of facts, particularly those facts which the Court has
listed as indicia of good faith, “which would lead a reasonable and
prudent person to believe that the granting of a lower price would
in fact meet the equally low price of a competitor.” Great Atlantic
9
& Pacific Tea Co., 99 S.Ct. at 934. First, Mercury relied on
several different sources for their approximation of OMC’s
discounts, including Ron Spradling and Mark Walton, both of whom
had personal knowledge of the competing bid and neither of whose
credibility had been questioned. Then, as a Mercury Marketing
director explained at trial, Mercury attempted to corroborate their
information:
“[W]e kind of looked at what the boat pricing was out in
the marketplace, and some people started to do some math
there, and we listened to what you heard at boat shows
and other people that tended to talk about what they
thought they knew, a lot of that information triangulated
pretty closely.”
We agree with the district court’s finding that such information
forms a sufficient basis on which Mercury could have acted in good
faith. Indeed, its is doubtful that Mercury could have investigated
any further without exposing themselves to risk of liability under
section 1 of the Sherman Act.6
As further evidence of good faith, the Supreme Court has
previously considered whether the seller “was threatened with a
termination of purchases if the discount were not met.” See United
States Gypsum Co., 98 S.Ct. at 2882. Such a consideration is not
6
The Court has held that the exchange of price information
by competitors violates the Sherman Act. United States v.
Container Corp., 89 S.Ct. 510 (1969), and has often explained
that this risk of liability circumscribes the efforts which a
seller may undertake to verify a competing offer. See e.g.,
United States Gypsum Co., 98 S.Ct. at 2884.
10
directly relevant here, since the immediate focus of Mercury’s
effort was to win a new customer rather than keep an old one;
however, the logic underlying this consideration still applies. It
is clear from trial testimony that Travis repeatedly refused
Mercury’s advances and favorable price offerings until an agreement
was finally reached in October of 1998. Like the scenario where a
seller loses existing business, this refusal indicates that the
final lower price was necessary to compete, not a predatory attempt
to undermine competition.
Faced with this evidence of good faith, Water Craft then
advances a more subtle claim, contending that Mercury’s
discriminatory discount was offered not for “pricing reasons” (i.e.
to respond to OMC’s lower price) but for “marketing reasons” (i.e.
to win Travis’s business and thus participate in their rapid
growth).
We find no substantial evidence that supports such a claim by
Water Craft. Although there is trial testimony suggesting that the
reason Mercury pursued Travis in the first place was to protect
Mercury’s gulf coast market, this fact does not suggest that those
same marketing concerns led Mercury to offer Travis — and only
Travis — a substantial discount. Instead, the evidence suggests,
and the district court found, that Mercury’s decision to offer
especially low prices to Travis was driven entirely by price
negotiations in which Travis, like any savvy buyer, used its OMC
11
price schedule to extract deep discounts from Mercury.
Accordingly, we hold that the district court did not clearly err in
finding that Mercury’s price discrimination was a good faith
response to OMC’s lower price.
Water Craft advanced a second theory at oral argument,
contending that, as a matter of law, Mercury’s discrimination
didn’t “meet” the competition because Mercury’s final
discriminatory price was not as low as OMC’s price. For this
proposition, Water Craft cites Falls City, in which the Court
explains that “a seller's response must be defensive, in the sense
that the lower price must be calculated and offered in good faith
to 'meet not beat' the competitor's low price.” Falls City, 103
S.Ct. at 1294. From this statement, they extrapolate to the
counter intuitive conclusion that the discriminatory price also
must “meet not exceed,” the competitor’s low price.
This strained reading of Falls City aside, there is no support
for Water Craft’s novel theory in the case law, and, in fact, there
is language which implies otherwise. First, we note that it is the
seller’s intent to meet a competitor’s price, not the actual
correspondence between prices, that triggers the meeting
competition defense. In Great Atlantic & Pacific Tea, for example,
the Court held that “[s]ince good faith, rather than absolute
certainty, is the touchstone of the meeting-competition defense, a
seller can assert the defense even if it has unknowingly made a bid
12
that in fact not only met but beat his competition.” Great Atlantic
& Pacific Tea Co., 99 S.Ct. at 934; see also United States Gypsum
Co., 98 S.Ct. at 2884 n.32 (“The good-faith requirement of the §
2(b) defense implicitly suggests a somewhat imperfect matching
between competing offers actually made and those allowed to be
met.”).
Furthermore, we hold that the meeting competition defense
applies even in a case such as this one, where the seller knew that
its discriminatory price was not as low as its competitor’s price,
yet nevertheless offered that discriminatory price in a good faith
response to the competition. The Court’s recent statement of the
meeting competition defense implicitly supports this position,
holding that “under the circumstances it was reasonable to believe
that the quoted price or a lower one was available to the favored
purchaser or purchasers from the seller’s competitors.” Falls City,
103 S.Ct. at 1290 (emphasis added).
Indeed, Water Craft’s argument in this respect in essence
attributes an irrational intent to Congress. Plainly, a principle
intent of the Robinson-Patman Act was to protect small retailers
against the price favoritism which the manufacturers of the
products they sold might show to the large retailers with whom they
competed. Congress, however, allowed the manufacturers a defense
plainly intended to allow them to offer a discriminatorily lower
price favoring only certain retailers in a good faith effort to
13
meet the competition of a rival manufacturer’s lower prices. Water
Craft would require that the discriminating manufacturer offer an
even lower price than that necessary to meet the competition of the
rival manufacturer – here, that Mercury, in order to avail itself
of the defense, must have offered Travis an even lower price than
was necessary to get its business from OMC. In other words, that
if Mercury discriminated more against Water Craft, and had harmed
it more, Water Craft would have no recovery. But, because Mercury
was able to get the Travis business from OMC by offering Travis a
special low price that was not quite as low as OMC’s price,
Mercury, according to Water Craft, can have no defense. This
approach increases the price disparities between retailers contrary
to overall intent of the Act. Nor is any useful purpose suggested
by such a requirement. Moreover, Water Craft does not explain how
the offering of a price lower than necessary to get Travis’s
business could be deemed to be “in good faith” on Mercury’s part.
Such action would also properly be characterized as violating the
“defensive” and the “meet not beat” standards referenced in Falls
City. 103 S.Ct. at 1294. On the other hand, Falls City plainly
recognizes that the competition defense may apply if the price
offered by the competitor is either the same price as that offered
by the defendant “or a lower one.” Id., 103 S.Ct. at 1290.
We also draw support for our holding from the Court’s
longstanding mandate that the Robinson-Patman Act be construed
14
consistently with broader policies of the antitrust laws. See e.g.,
United States Gypsum Co.; Automatic Canteen Co. of America v. FTC,
73 S.Ct. 1017, 1024 (1953); Great Atlantic & Pacific Tea Co., 99
S.Ct. at 933; Volvo Trucks North America, Inc. v. Reeder-Simco GMC,
Inc., 126 S.Ct. 860, 872–73 (2006). We resist Water Craft’s
narrowing of the meeting competition defense, especially in light
of the Court’s reminder that “the right of a seller to meet a lower
competitive price in good faith may be the primary means of
reconciling the Robinson-Patman Act with the more general purposes
of the antitrust laws of encouraging competition between sellers.”
Great Atlantic & Pacific Tea Co., 99 S.Ct. at 934 n.16; see also 14
HERBERT HOVENKAMP, ANTITRUST LAW 2352a, at 182 (2005) (“[T]he [Robinson-
Patman Act] . . . is certainly less hostile toward competition with
such a defense than it would be without one.”).
The district court’s findings on the meeting competition
defense are not clearly erroneous and the court properly granted
judgment in favor of Mercury on Water Craft’s Robinson-Patman Act
claim.
CONCLUSION
The judgment of the district court is
AFFIRMED.
15