Callahan v. A.E v. Inc.

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
6-30-1999
Callahan v. AEV Inc
Precedential or Non-Precedential:
Docket 98-3456
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Filed June 30, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 98-3456
MICHAEL W. CALLAHAN; PERRY BEER INC.; PETER G.
PETOUSIS; NORMAN BERNARDI; KATHLEEN A. KAPRES;
PETE'S BEER INC.; LISA MARTIN; ANTHONY
SANTAGUIDA; THOMAS SANTAGUIDA; A. L.
ABROMOVITZ; CARL N. ALTENHOF; DOUGLAS J.
BERTHOLD; BREW-THRU, INC.; ALLEN E. BRAUN;
SPIKE'S BEER DISTRIBUTOR, INC.; DINO A. DEFLAVIO;
CAROLE A. DEMARCO; FRED DEMSHER; E & C PRICE
DISTRIBUTING, INC.; FRISCH DISTRIBUTING CO. INC.;
SARA J. KELLY; MARY LOU LIBELL; THE BEER
WAREHOUSE; ARMANDO NOVELLI; MARTIN P. PEKOR;
T.C. VALLEY BEER & POP COMPANY, INC.; LORETTA J.
PERRI; GREEN VALLEY DISTRIBUTING CO., INC.;
MARYANNE SANTAGUIDA; INGEBORG G. SCHINDLER;
DENNIS SENNEWAY; MICHAEL T. VOELKER; VOELKER
DISTRIBUTING, INC.,
Appellants
v.
A.E.V., INC., a corporation; BEER AND POP
WAREHOUSE, INC., a corporation; BRANDT
DISTRIBUTORS OF PITTSBURGH, a corporation; EARL
BRANDT, an individual; FRANK B. FUHRER WHOLESALE
COMPANY, a corporation; FRANK B. FUHRER, JR., an
individual; JET DISTRIBUTORS, INC., a corporation;
ALFRED M. LUTHERAN DISTRIBUTORS, INC., a
corporation; JAMES LUTHERAN, an individual; Q.F.A.,
INC., a corporation; RED SKY, INC., a corporation;
RETAIL SERVICES AND SYSTEMS, INC., a corporation;
DAVID J. TRONE, an individual
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civ. No. 92-cv-00556)
District Judge: Honorable Donetta W. Ambrose
Argued: March 25, 1999
Before: BECKER, Chief Judge, LEWIS and
WELLFORD,* Circuit Judges.
(Filed June 30, 1999)
H. LADDIE MONTAGUE, JR.,
ESQUIRE
JEROME M. MARCUS, ESQUIRE
(ARGUED)
BART D. COHEN, ESQUIRE
Berger & Montague, P.C.
1622 Locust Street
Philadelphia, PA 19103
Counsel for Appellants
ROSLYN M. LITMAN, ESQUIRE
(ARGUED)
MARTHA S. HELMREICH, ESQUIRE
Litman, Litman, Harris and Brown,
P.C.
3600 One Oxford Centre
Pittsburgh, PA 15219
Counsel for Appellees A.E.V., Inc.;
Beer & POP Warehouse, Inc.;
Jet Distributors, Inc.; Q.F.A., Inc.;
Red Sky, Inc.; Retail Services and
Systems, Inc.; David J. Trone
_________________________________________________________________
*Honorable Harry Wellford, United States Circuit Judge for the United
States Court of Appeals for the Sixth Circuit, sitting by designation.
2
MICHAEL YABLONSKI, ESQUIRE
(ARGUED)
Meyer, Unkovic & Scott, LLP
1300 Oliver Building
Pittsburgh, PA 15222
Counsel for Appellees
Frank B. Fuhrer Wholesale Company
and Frank B. Fuhrer, Jr.
OPINION OF THE COURT
BECKER, Chief Judge:
Prior to 1985, the retail sale of beer in the Pittsburgh
area was conducted exclusively by "mom and pop"-type
beer distributorships, such as those operated by plaintiff
Michael W. Callahan and his fifteen co-plaintiffs. In that
year, defendant David Trone opened the first "Beer World"
store, a supermarket-style beer distributorship ten times
the size of the traditional stores. He opened four more such
stores in the Pittsburgh area between 1986 and 1988,
offering a larger selection and lower prices. This case
involves antitrust and RICO claims arising out of the
manner in which Trone operated these stores.
The Pennsylvania Liquor Code limits the ability of one
entrepreneur to own or operate more than one beer
distributorship. Trone apparently evaded these restrictions
by placing the Beer World stores in the names of others,
and, while acting as a "consultant," effectively running the
stores himself. According to the plaintiffs, Trone deceived
the Pennsylvania Liquor Control Board (LCB) as to the true
state of affairs by filing of false statements and affidavits.
Trone negotiated purchases of beer from wholesalers for
all of the Beer World stores collectively. By doing so, the
stores were able to purchase at a wholesale price lower
than they would have been able to obtain in individual
purchases. Central to this case are Trone's negotiations
with defendant Frank Fuhrer, the master distributor in the
Pittsburgh area for Anheuser-Busch and Coors, in the
course of which Trone allegedly forced Fuhrer to agree to
3
give a quantity discount to the Beer World stores based on
their purchases as a group, but not to give this discount to
any other retailers.1 Trone is said to have been able to do
this because the Beer World stores held a substantial
portion (at least 25%) of the Pittsburgh beer market, and
because he threatened to place Fuhrer's products poorly
within the stores. The Beer World stores allegedly received
this discount even though their orders in the aggregate did
not always reach the 4500-case level Fuhrer set for the
discount. According to the plaintiffs, this discount was not
disclosed to anyone else; it was not included on Fuhrer's
ordinary price list and was excluded from loading sheets
posted at Fuhrer's distribution center. Not surprisingly, the
Beer World stores' advantage in pricing, as well as other
areas, cut sharply into the business of the smaller stores.
This state of affairs has spawned this unusual antitrust
and civil RICO case with state tort law claims appended,
brought by the plaintiffs against Trone, the Beer World
stores, and Fuhrer.2 The plaintiffs' antitrust theory is that
Trone, his employees, and the separately incorporated
stores have contracted, combined and conspired to restrain
trade in beer in Allegheny County, by confronting
wholesalers as a group and using their buying power and
the threats described above to force the wholesalers to sell
them beer at a price lower than that available to other
retailers. The plaintiffs' RICO theory is that Trone and
others, by submitting false statements and affidavits to the
LCB, as well as lying to a grand jury to cover up these false
statements, were able to maintain illegal consolidated
control of the Beer World stores. The plaintiffs submit that,
_________________________________________________________________
1. Several other master distributors were involved in similar
arrangements with the defendants. Although they were apparently
named in the original complaint, they have now settled with the plaintiffs
and are no longer participating in this case.
2. The Beer World stores are separately incorporated and named in the
complaint as A.E.V., Inc., Beer and Pop Warehouse, Inc., Jet Distributor,
Inc., Q.F.A., Inc., and Red Sky, Inc., all of which operate under the Beer
World name. Trone is named personally in the complaint, along with the
consulting business he runs, Retail Services and Systems, Inc. Fuhrer
includes both Frank B. Fuhrer, Jr. himself and his business, Frank B.
Fuhrer Wholesale Co.
4
as a result of this control, Trone and the Beer World stores
obtained the advantages that enabled them to sell beer at
prices below that of the plaintiffs. Although in a free
market, these different approaches to operating a beer
distributorship might not seem to offer grounds for a
federal antitrust or civil RICO suit, in the context of
Pennsylvania's detailed malt and brewed beverages
regulatory scheme, the plaintiffs have found grounds for a
lawsuit.
The District Court granted summary judgment for the
defendants on all claims, including both the state tort law
claims and the federal claims, and the plaintiffs have
appealed. Strangely, antitrust liability issues are not
presented in this appeal. The District Court, in deciding the
defendants' motion for summary judgment, did not
consider antitrust liability issues at all; rather, the District
Court disposed of the antitrust and RICO claims on the
ground that the plaintiffs had not produced sufficient
evidence that they suffered actual losses that were in fact
a result of the defendants' actions. Accordingly, and given
the incomplete state of the record as presented to us by the
parties, we do not intend to engage in an examination of
the nature and scope of the plaintiffs' theory or proof of
antitrust violations (and, consequently, we express no view
as to their correctness). Instead, we will assume, for the
purposes of this appeal, that the plaintiffs can offer
sufficient proof that the defendants engaged in antitrust
violations throughout the relevant time periods. We will
accordingly concentrate on the issues -- actual loss and
causation in fact (termed "fact of damage") with respect to
the antitrust claims, and proximate causation with respect
to the RICO claim -- that are fairly presented by this
appeal.
In order to prove that the plaintiffs suffered losses and
that the defendants' antitrust violations caused the injuries
as a matter of fact, the plaintiffs offered (1) testimony that
various customers no longer came to their stores and that
the customers explained that this was because the Beer
World stores offered cheaper prices, along with (2) the
report of an expert who opined that the defendants' actions
had caused harm to the plaintiffs. The defendants contend
5
that this evidence is insufficient to meet the plaintiffs'
burden of production. They first submit that the plaintiffs'
anecdotal evidence is inadmissible hearsay on which the
plaintiffs cannot rely. We disagree. The plaintiffs themselves
can testify that the customers are in fact no longer
shopping at their stores. Furthermore, although the reports
of the customers' statements are hearsay, they are
admissible as evidence of the customers' states of mind,
i.e., their reasons for no longer shopping at the plaintiffs'
stores. This combined evidence is sufficient to meet the
plaintiffs' burden of producing enough evidence of loss and
causation with respect to the plaintiffs' antitrust claims to
overcome a motion for summary judgment.
Also on the antitrust issues, the defendants argue that
the plaintiffs' proffered expert testimony is inadequate to
prove fact of injury and causation because, inter alia, the
expert failed to discuss numerous other possible causes of
the plaintiffs' losses. Furthermore, the defendants challenge
the expert's methodology for estimating the amount of
damages. In spite of these flaws, we conclude that the
expert's testimony is sufficient to meet the plaintiffs' burden
of proof. At all events -- taking into consideration both the
customer evidence and the expert reports-- we believe that
the District Court erred in dismissing the plaintiffs'
antitrust claims on the ground that there was inadequate
proof of fact of injury and causation in fact.
With respect to the RICO claim, the defendants contend
that the alleged causal connection between the defendants'
fraud and the plaintiffs' losses is not sufficiently close to
meet the requirement of proximate causation. The plaintiffs'
RICO claim runs as follows: If Trone and others associated
with the Beer World stores had not defrauded the
Pennsylvania Liquor Control Board by submitting sworn
statements that Trone did not own and control all of the
stores, the Liquor Control Board would have put Trone out
of business. Since he stayed in business, Trone was able to
use his control of several stores to obtain volume discounts
by buying for the stores in the aggregate. The plaintiffs were
then harmed by the defendants' ability to sell at lower
prices.
6
We think this case is similar to Steamfitters Local Union
No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912
(3d Cir. 1999), in which we recently held that the plaintiffs
had failed to prove proximate causation. In Steamfitters, we
recognized three factors the Supreme Court has identified
for determining proximate causation in RICO cases: the
directness of the injury, the difficulty of apportioning treble
damages among potential plaintiffs, and the possibility of
other plaintiffs vindicating the goals of RICO. Given that the
plaintiffs are relatively remote third-party "victims" of the
fraud and that the LCB itself, or the wholesalers, could take
steps to counter the defendants' allegedly illegal actions, we
think the plaintiffs' claim meets none of the factors.
Accordingly, we believe that the District Court properly
dismissed the plaintiffs' RICO claim, although not for the
appropriate reason. For these reasons, we will affirm the
judgment of the District Court to the extent it dismissed the
plaintiffs' RICO claim, but reverse its judgment with respect
to the antitrust claims.
I. Facts and Procedural History
A. The Pennsylvania Beer Sales Regulation Scheme
Pennsylvania is a state in which temperance with respect
to alcoholic beverages has always been an important policy,
and statutory regulation of alcoholic beverage sales is
extensive. The best known example, of course, is the"state
store" system, under which liquor can only be sold in state-
owned stores. With respect to malt and brewed beverages
there is likewise a panoply of regulations. See, e.g., Pa.
Stat. Ann. tit. 47, S 4-441(b) (West 1997) (prohibiting sales
in units smaller than one case); S 4-447 (limiting sellers'
ability to change prices); S 4-492(2) (prohibiting sales by
licensees for consumption on the premises); S 4-492(4)
(prohibiting sales on Sunday); S 4-493(2) (prohibiting credit
sales of alcoholic beverages other than by credit card); S 4-
493(3) (prohibiting exchange of alcoholic beverages for
goods or services); S 4-493(8) (prohibiting the use of labels
or advertisements containing the alcoholic content of
brewed or malt beverages).
For present purposes, we are concerned with the
regulation of beer sales. Under Pennsylvania law, beer
7
sellers are divided into four classes for licensing purposes:
manufacturers, master distributors, importing distributors
and distributors. See Pa. Stat. Ann. tit. 47, S 4-431 (West
1997). The first category consists of breweries. An out-of-
state brewer is required to designate a particular importing
distributor as the master distributor for a particular
geographic area within which only that master distributor
is permitted to buy that brewer's beer directly from the
brewer. See S 4-431(b). Thus, any beer sold in a particular
area must at some point pass through the master
distributor designated for that brand in that area. A master
distributor can sell beer to importing distributors,
(ordinary) distributors or the public. An importing
distributor can also sell beer either to other importing
distributors, (ordinary) distributors or the public. A
distributor can only sell beer to the public. The Beer World
stores all have importing distributor licenses, and can
therefore sell to each other and to the public. Only some of
the plaintiffs have such licenses.
Highly relevant here is the extent to which Pennsylvania
law limits the ability of a participant -- e.g., a partner,
member or shareholder -- in one beer distributor to
participate in another. See S 4-438 ("No person shall
possess more than one class of license . . . .");S 4-443
(prohibiting interlocking ownership in various forms). In
particular, the law restricts the ability of an individual to
participate in companies that operate at the same level,
although the parties debate the extent to which the law
does so. See S 4-438(b) ("No person shall possess or be
issued more than one distributor's or importing
distributor's license."); S 4-436(e) (application for brewed or
malt beverage license must state "[t]hat the applicant is
not, or in case of a partnership or association, that the
members are not, or in the case of a corporation, that the
officers or directors are not, in any manner pecuniarily
interested, either directly or indirectly, in the profits of any
other class of business regulated under this article, excepts
as hereinafter permitted"); S 4-436(f) (applicant must state
"[t]hat applicant is the only person in any manner
pecuniarily interested in the business so asked to be
licensed . . . .").
8
B. Trone's Beer Business Arrangements
Trone's family had been in the beer business in
Harrisburg and Pittsburgh for some time. While a business
student at the University of Pennsylvania's Wharton School,
Trone apparently came up with a plan for a new type of
beer distributorship business. Prior to his plan, beer
distributors were typically small, low-capitalization "mom-
and-pop" stores of the kind operated by the plaintiffs. They
usually had ordinary distributor licenses and operated
relatively small stores, selling beer by having people come
in and ask for a particular brand. Trone's idea was to
create much larger stores, roughly ten times the square
footage of the plaintiffs' stores, to be operated like a
supermarket. The cases of beer would be set out on shelves
so that shoppers could wander through the store picking
out particular brands themselves. In addition, Trone
planned to offer soda and snacks in addition to the beer.
This business plan became the "Beer World" concept.3 We
chronicle the history and management structure of the
stores because it bears on the contention that Trone
improperly controls all of the stores in violation of the
Pennsylvania liquor control scheme, an important part of
the plaintiffs' antitrust and RICO claims.
The first Beer World opened in the Pittsburgh area in
1985. Two more stores opened in Pittsburgh in 1986,
followed by the last two in 1987 and 1988. The first store,
incorporated as Jet Distributors, Inc., is apparently owned
by Paul Piho, a childhood friend of Trone's. Piho initially
worked full-time in Chicago after the store opened. For a
short time, he moved to Pittsburgh and managed the store.
Currently, he works at a Delaware branch of a chain of
liquor stores apparently owned by Trone. The second store
is apparently owned by Trone's wife, who for a time worked
at the store, but presently spends less than five hours per
week there. The third is apparently owned by Thomas
_________________________________________________________________
3. It might seem surprising that Trone was thefirst to come up with the
beer supermarket concept. Indeed, one might think that it would have
been around for decades. Perhaps he was simply thefirst to bring this
idea to Pennsylvania. At all events, these ruminations have no bearing
on the outcome of this case.
9
Esper, a retired schoolteacher who apparently knows little
about either the store or the liquor business. The fourth
store is apparently owned by Trone's sister, who has been
in school or working at other jobs for the relevant period.
Before 1990 and since 1994, she has lived outside of
Pennsylvania. The last store was apparently owned by
Albert Vivio, the father of one of Trone's employees. He
stated that he did not pay anything to own the store, but
that Trone asked him to put his name on a license. He
testified that he had "no duties at the store," pursuant to
an "agreement with Mr. Trone."
Since the Beer World stores opened, Trone has been
employed as a "consultant" for all of them. The plaintiffs
allege, however, that Trone's role in the stores is much
greater. When the stores opened, he did much of the work
in preparing the stores, choosing product line and layout,
and selecting employees. He also set up purchasing and
delivery systems. Since then, Trone has apparently
controlled the day-to-day operations of the stores. He set
the salaries for Beer World employees. Employees were
routinely moved from store to store while remaining on the
payroll of the store in which they began. Although each
store maintains a separate bank account in the owner's
name, Trone has a stamp of each owner's signature which
he uses for checks. He also designed all the advertising for
the stores, which included aggressive price advertising until
July 1, 1987, when Pennsylvania banned it. And he
determined purchasing and product placement within the
stores. Finally, Trone purchased a single insurance policy
and used one law firm for all of the stores.
Of particular relevance to the plaintiffs' claims are
Trone's efforts in coordinating purchasing. Trone negotiated
purchases of beer from wholesalers for all of the Beer World
stores at once, obtaining an agreement that the Beer World
stores could order together in order to obtain substantial
volume discounts. The parties focus particularly on the
negotiations between Trone and Fuhrer, who was the
master distributor in the Pittsburgh area for Anheuser-
Busch and Coors. All of Fuhrer's negotiations regarding the
prices he would charge Beer World stores were conducted
with Trone.
10
Even before the Beer World stores opened, beer
wholesalers offered various quantity discounts, although
they were relatively small. From September 1, 1987, until
the end of 1989, pursuant to an agreement with Trone,
Fuhrer implemented a $.25 per case discount for purchases
of 4500 or more cases, a purchase amount substantially
larger than that required for other, smaller volume
discounts wholesalers offered. The Beer World stores were
the only ones ever able to achieve this level of purchasing,
which they did by ordering as a unit. Although each store
would place separate orders that were delivered separately,
they were placed in the name of Jet Distributors, one of the
stores, in order to aggregate the order size to reach the
4500 case level. Each store's order was substantially less
than this, usually in the range of 1000 cases. Although the
plaintiffs attempted to take advantage of this discount, they
were never able or permitted to do so.
Although the parties focus primarily on these quantity
discounts, the plaintiffs allege that Trone was also able to
obtain other benefits for the Beer World stores from
wholesalers. For example, Fuhrer allegedly gave the Beer
World stores a full-time employee, paid by Fuhrer, who
stocked shelves at all of the stores. The plaintiffs further
contend that Trone forced Fuhrer to sell him out-of-code
beer, i.e., beer past its expiration/freshness date, at a
discount. Apparently state law prohibits this and requires
wholesalers to give retailers new beer in exchange for out-
of-code beer. Trone allegedly got such beer at a discount
and sold it while concealing the fact that it had expired
from customers and inspectors sent by the beer brewers.
The plaintiffs criticize several aspects of these
arrangements. First of all, they contend that Trone forced
Fuhrer to agree not to give the discount to any other
retailers. He allegedly could do so because, since the Beer
World stores held a substantial portion (at least 25%) of the
Pittsburgh beer market, Trone's threat to place Fuhrer's
products in unfavorable locations within the stores carried
force. Second, the plaintiffs point out that the Beer Worlds
consistently received this discount even though their orders
in the aggregate did not always reach the 4500-case level.
In addition, many of the individual orders were fairly small:
11
29% were below 500 cases and 14% were below 200 cases,
roughly the level at which the plaintiffs ordered. Finally,
this discount was not disclosed to anyone else; it was not
even included on Fuhrer's ordinary price lists.
In response to the defendants' actions, the plaintiffs
instituted a state lawsuit against the defendants and
convinced the Commonwealth to commence criminal
proceedings. Neither of these actions achieved their desired
results.
C. The Present Lawsuit
The plaintiffs filed the present lawsuit in March of 1992.
Their primary claims include price fixing, engaging in a
group boycott, and attempting and conspiring to
monopolize the beer market in Pittsburgh, all in violation of
the Sherman Act, 15 U.S.C. SS 1 & 2, and civil RICO claims
predicated on money laundering and mail fraud in
connection with the license applications to the LCB, said to
be a violation of 18 U.S.C. SS 1341, 1956, 1962. They also
brought various other claims that have been dismissed and
not appealed or that we may dispose of summarily. 4
Although the plaintiffs moved for class certification, this
motion was denied, at which point some additional
plaintiffs joined the suit.
The antitrust claims arise out of the joint operation of the
Beer World stores. The plaintiffs contend that, by operating
as a group, the Beer World stores were able to obtain an
illegal competitive advantage. As evidence of such joint
operation, they point to inter alia Trone's collective control
of the stores, the aggregated orders through Jet
Distributing, and coordinated advertising. The plaintiffs
contend that this conduct violated the antitrust laws in
_________________________________________________________________
4. These claims include price discrimination in violation of the Robinson-
Patman Act, 15 U.S.C. S 13; common-law fraud; common-law conspiracy
to defraud; and RICO violations predicated on mail fraud in the mailing
of price lists by Fuhrer, 18 U.S.C. SS 1341, 1962. The Robinson-Patman
Act claim was dismissed early on, and the plaintiffs have not appealed
from that dismissal. See Callahan v. A.E.V., Inc., Civ. A. No. 92-556,
1994 WL 682756 (W.D. Pa. Sept. 26, 1994). The plaintiffs' others claims
are discussed in infra note 7.
12
several ways. First, the "quantity" discounts the Beer World
stores were able to obtain are said to have constituted
unfair price fixing, i.e., the price for other beer distributors
was fixed at a level $.25 higher than that for the Beer World
stores. Second, the discounts are claimed to have resulted
in a group boycott, i.e., Beer World convinced the
wholesalers to sell to the other distributors only on unfairly
disadvantageous terms. Finally, the plaintiffs allege that all
of the actions of Trone and the Beer World stores
constituted an effort to monopolize the beer retail market in
Allegheny County, which includes Pittsburgh. These efforts
were aggravated by the fact that, pursuant to the
Pennsylvania Liquor Code, the plaintiffs could only
purchase beer through the single, designated master
distributor for each brand for Allegheny County.
The RICO claim arises out of the various statements
made during and concerning the Beer Worlds' efforts to
obtain licenses from the LCB. First, various of the
defendants and others allegedly lied about the true
ownership of the Beer World stores in affidavits and other
documents filed with the LCB via mailings in order to
obtain and retain their licenses. Second, Trone and others
allegedly lied before a grand jury investigating their
operation when asked about the ownership of the Beer
World stores. The plaintiffs contend that, as a result of this
fraud, the Beer World stores were able to remain in
business illegally under the control of Trone. Furthermore,
Trone is said to have engaged in transactions involving the
proceeds of this fraud, i.e., the income of the stores, by
reinvesting the money in the stores, allegedly in violation of
the money laundering statute. The plaintiffs contend that
these various activities violated RICO.
D. The District Court's Rulings
Following extensive discovery, the parties each moved for
summary judgment on various of the claims. The plaintiffs
moved for summary judgment on their RICO claim relating
to the Trone and Beer World defendants' statements to the
LCB. The District Court denied the plaintiffs' motion
because they did not "provide [any] substantive analysis of
13
the meaning or application of S 1962 or its various
subsections." Dist. Ct. Op. I, at 3.5
The defendants moved for summary judgment on all of
the plaintiffs' claims. The District Court, in a series of
orders, granted the defendants' motions in part and denied
them in part, and granted judgment in favor of the
defendants on all of the plaintiffs' claims. First, the District
Court dismissed part of the plaintiffs' RICO claim on
statute of limitations grounds to the extent it was based on
matters that occurred more than four years before the suit
was filed.6 Second, the District Court dismissed all of the
_________________________________________________________________
5. Since we will affirm the District Court's judgment in favor of the
defendants on the plaintiffs' RICO claim, we need not consider
specifically whether it erred in denying the plaintiffs' motion for
summary judgment.
6. The District Court granted the defendants' motion for summary
judgment on the RICO claim to the extent it was based on actions prior
to March 1988, four years before the present suit was filed, because the
plaintiffs should have been aware of the defendants' acts prior to that
time. The plaintiffs contend that the District Court's conclusion
erroneously rested on the fact that some of themfiled a state lawsuit
against Trone and the Beer World stores in 1986 alleging similar
concerns, during which they could have obtained sufficient discovery to
bring their present claims. They argue that their attorney misled them
into believing they could not pursue their claim in that context, and that
the statute of limitations should be tolled equitably.
We recently explained that attorney misconduct can give rise to
equitable tolling only in unusual circumstances. See Seitzinger v.
Reading Hosp. & Med. Ctr., 165 F.3d 236, 240 (3d Cir. 1999). The
plaintiffs contend that such unusual circumstances are present here,
because their attorney allegedly was conflicted in that he also
represented Fuhrer, and because, unlike Seitzinger, the lack of
information on which to base a claim was at least arguably a result of
the defendants' fraud. Furthermore, the plaintiffs note that, given the
tremendous difficulties they faced in obtaining adequate discovery from
the defendants in this case, the defendants cannot contend that the
plaintiffs would have been able to obtain sufficient discovery in the
previous state case. On the other hand, the defendants point out that,
even if they fraudulently concealed certain facts, the plaintiffs were
aware of those facts by the end of 1987. We need not decide this issue,
because we will affirm the District Court's dismissal of the RICO claim
in its entirety on other grounds.
14
plaintiffs' remaining claims -- the antitrust and RICO
claims -- because it concluded that the plaintiffs had not
offered sufficient evidence of fact of damage, i.e., loss and
causation in fact.7
_________________________________________________________________
7. As noted above, the plaintiffs brought additional RICO and common-
law tort claims. In the same series of orders identified in the text, the
District Court granted summary judgment on these claims in the
defendants' favor. We will affirm those aspects of the judgment
summarily.
The plaintiffs' common-law claims are that Fuhrer issued price lists
that were fraudulent because they did not state the volume discount the
Beer World stores received, and that Trone and Fuhrer conspired to
misrepresent the prices through the same mechanism. Claims for
common-law fraud and conspiracy are governed by a two-year statute of
limitations. See 42 Pa. Cons. Stat. S 5524(7). The discount was
discontinued at the end of 1989, and the plaintiffs were aware of the
discount before then. The complaint was filed in March of 1992.
Accordingly, the District Court concluded that more than two years had
elapsed between the defendants' fraudulent acts and the filing of the
complaint, and that the claim was therefore time-barred. Since the
plaintiffs have not addressed this issue in the briefs (or, apparently,
before the District Court), and the District Court's decision appears to
be
correct, we will affirm the District Court's judgment as to the common-
law claims summarily.
The other RICO claim was based on Fuhrer's allegedly fraudulent
mailing of price lists that did not include the $.25/case volume discount
offered to the Beer Worlds. This discount was begun in September of
1987. Fuhrer did not mail a price list thereafter until March of 1988,
and the plaintiffs were aware of the discount by October of that year.
The District Court analyzed whether this constituted a "pattern of
racketeering activity," 18 U.S.C. S 1962, in light of long-standing
precedent. See, e.g., H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S.
229, 241 (1989). First, the Court concluded that this was not an open-
ended pattern because, as Fuhrer discontinued the discount in 1989,
the alleged fraud was unlikely to recur. Second, the Court found that
fraud of six months' duration could not constitute a closed-ended
pattern. See, e.g., Tabas v. Tabas, 47 F.3d 1280, 1293 (3d Cir. 1995)
("Since H.J., Inc., this court has faced the question of continued
racketeering activities in several cases, each timefinding that conduct
lasting no more than twelve months did not meet the standard for
closed-ended continuity." (citing cases)). Because the plaintiffs could
prove no pattern of racketeering activity, the District Court concluded
that they could not bring a successful RICO claim based on the price
lists. Since the plaintiffs have not discussed this issue in their briefs
and
the District Court's reasoning is persuasive, we will affirm the District
Court's judgment in favor of the defendants on this other RICO claim,
also summarily.
15
Summary judgment "shall be rendered forthwith if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter
of law." Fed. R. Civ. P. 56(c). Although the plaintiffs must
prove loss, causation and specific damages, at the
summary judgment stage, the court's main concern should
be with determining loss and causation in general, rather
than proof of specific amounts of damages:
At this procedural juncture, reviewing the district
court's grant of summary judgment, we are not, as we
would be upon reviewing a jury verdict, determining
whether a plaintiff has brought sufficient evidence to
justify the actual damages awarded. Rather, here, all
we are concerned with is whether Rossi has
established that the defendants' illegal conduct was a
material cause of [his] injury.
Rossi v. Standard Roofing, Inc., 156 F.3d 452, 484 (3d Cir.
1998) (citation and quotations omitted); see also Stelwagon
Mfg. Co. v. Tarmac Roofing Sys., Inc., 63 F.3d 1267, 1276
n.19 (3d Cir. 1995) (declining to consider whether the
plaintiff had offered sufficient proof of the amount of
damages, since the plaintiffs' proof of loss in general was
inadequate).
On appeal, our review of a District Court's grant of
summary judgment is plenary. See In re Baby Food
Antitrust Litig., 166 F.3d 112, 123 (3d Cir. 1999). "We
evaluate the evidence using the same standard the District
Court applied in reaching its decision." 166 F.3d at 123-24.8
II. Antitrust Claims: Antitrust Liability
In the ordinary case, liability is the first question that
must be decided. Accordingly, we would usually begin our
analysis of this case with a discussion of whether the
plaintiffs have produced sufficient evidence to prove that
_________________________________________________________________
8. The District Court had subject matter jurisdiction pursuant to 28
U.S.C. S 1337 and 1367, as well as 15 U.S.C.S 15. We have appellate
jurisdiction pursuant to 28 U.S.C. S 1291.
16
the defendants violated the Sherman Act. Although that
would appear to be an obvious question in this case, for the
reasons set forth below we are not presently in a position
to evaluate the plaintiffs' theory of antitrust liability. We
will, however, briefly summarize that theory and the
defendants' arguments against it in order to provide a
background for our discussion of fact of damage, and for
the benefit of the District Court and the parties on remand.
The plaintiffs' antitrust claims begin with the premise
that Trone coordinated the activities of all of the Beer World
stores. In support of this contention, they note that Trone
dictated most aspects of store policy, was in charge of
hiring and managing employees, and had sole control of the
stores' accounts. In addition, Trone coordinated the stores'
interactions with other people, including wholesalers and
customers. He negotiated a single set of wholesale prices for
all of the Beer World stores. When one wholesaler would
not agree to a discount, he organized a joint advertising
campaign among the stores against the wholesaler. He also
published joint advertising for the stores.
Furthermore, Trone and the stores allegedly conspired
with wholesalers, Fuhrer in particular, so that the stores
could obtain a competitive advantage over other retailers.
Most prominently, the plaintiffs allege that Trone convinced
Fuhrer to grant the stores a volume discount $.25/case
lower than that available to any other retailer. This
discount was concealed from other customers and
wholesalers in several ways, and denied to the customers
when they requested it. The Beer World stores' orders
pursuant to the discount were placed jointly. Furthermore,
the discount was always given even though the minimum
order required for the discount was not always met by the
Beer World stores in the aggregate. In addition, the
plaintiffs contend that the evidence shows that Fuhrer
granted the stores other advantages, including special
delivery terms and assistance in placing beer in the stores.
The plaintiffs contend that the advantages the Beer World
stores obtained caused losses to the plaintiffs. As a result
of the advantages, the Beer World stores were able to
undersell the plaintiffs. Accordingly, the plaintiffs contend,
they lost customers to the Beer World stores. The plaintiffs
17
submit that these harms were particularly aggravated
because of the geographical limitations the Liquor Code
places on distributors. The Code requires that, for each
brand of beer sold in a particular area, a specific wholesaler
be designated as the master distributor. A beer retailer
within that geographic area, must buy that brand either
from the master distributor, or from someone who bought
it from the master distributor. Since the plaintiffs allege
that the defendants were conspiring with the master
distributors, they were at a particular competitive
disadvantage.
Although, as noted above, the plaintiffs identify several
antitrust liability theories, they focus on one in particular
in their briefs. They argue that the aforementioned actions
constitute a group boycott on the part of Trone, the Beer
World stores, and Fuhrer. They contend that Trone
convinced Fuhrer to agree to sell beer to the Beer World
stores at a lower price than would be available to any other
retailer. They rest their legal theory on, inter alia, Klor's,
Inc. v. Broadway Hale Stores, Inc., 359 U.S. 207 (1959),
and Rossi v. Standard Roofing, Inc., 156 F.3d 452 (3d Cir.
1998).
The defendants contend that the plaintiffs' theory of
antitrust liability is untenable for several reasons. First,
they argue that the plaintiffs' theory is simply a Robinson-
Patman Act price-discrimination claim recast as a Sherman
Act claim. They note too that the plaintiffs did bring a
Robinson-Patman Act claim that was dismissed on
jurisdictional grounds. The defendants also submit that
price discrimination without much more cannot be a
violation of the Sherman Act.
We agree that price discrimination simpliciter -- even
when it violates the Robinson-Patman Act -- is usually not
a Sherman Act violation. But we do not think this
necessarily means that the plaintiffs are barred from
bringing a price discrimination claim under the Sherman
Act. The plaintiffs' claims are unlike an ordinary price
discrimination case, in which a single supplier offers
different prices to different purchasers in order to advance
its own interests. They allege that Fuhrer was convinced to
offer different prices in order to advance the defendants' --
18
the plaintiffs' competitors -- interests. We see no reason
why price discrimination, under appropriate circumstances,
could not be part of an agreement in restraint of trade or a
monopolization attempt. See, e.g., Black Gold, Ltd. v.
Rockwool Indus., Inc., 729 F.2d 676, 683-84 (10th Cir.
1984); Peelers Co. v. Wendt, 260 F. Supp. 193, 198 (W.D.
Wash. 1966); McKeon Constr. v. McClatchy Newspapers,
Civ. No. 51627, 1969 WL 226 (N.D. Cal. Nov. 24, 1969). So
long as the price discrimination involves a conspiracy to
restrain trade or create a monopoly in some market--
along with a substantial effect on competition in the
market, see J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d
1524, 1541 (3d Cir. 1990) (quoting Zoslaw v. MCA
Distributing Corp., 693 F.2d 870, 887 (9th Cir. 1982)); see
also United States v. Arnold, Schwinn & Co., 388 U.S. 365,
375 (1967) -- it would violate the Sherman Act. The proper
evidence in this case might support the conclusion that this
constituted a conspiracy or agreement to restrain trade or
create a monopoly, although we express no opinion as to
whether the plaintiffs have produced such evidence.
The defendants also contend that the plaintiffs cannot
prove that they engaged in a group boycott. Relying on
Klor's and Rossi, they submit that a group boycott only
exists where the defendants' actions result in the product's
not being available to the plaintiffs at all, or only being
available at highly unfavorable terms. Of course, when one
thinks of a boycott, one ordinarily thinks of preventing
access to something entirely. Moreover, the defendants
contend that the putative quantity discount is modest. The
plaintiffs respond, however, that the evidence here is
sufficient to conclude that, as a result of the defendants'
actions, beer was only available to them on highly
unfavorable terms, i.e., $.25/case more than their
competitors were paying.
Finally, the defendants contend that the antitrust
violations were limited to a narrow array of conduct,
specifically the $.25/case discount discussed above.
Plaintiffs contest this point vigorously. They suggest that,
solely with respect to Fuhrer, the evidence supports the
conclusion that he engaged in other activities over a longer
period of time, including delivery and product placement
19
assistance, that gave the Beer World stores an advantage.
Furthermore, the plaintiffs point to evidence that suggests
that other wholesalers were giving the Beer World stores
discounts and other benefits throughout a substantially
broader time frame.
The District Court did not address these questions of
antitrust liability because it thought it could dispose of the
case on other grounds. In part, this may have been because
the Court came to the case late, upon transfer of the case
from the docket of another judge.9 In addition, it
undoubtedly seemed to it to be a more straightforward way
in which to dispose of the case. We imply no criticism of the
District Court's approach. As discussed further below,
however, liability is not an issue that ultimately can be
avoided in this case. The defendants have suggested that it
is an appropriate alternative grounds upon which we can
rest our judgment, but we do not think so. Although the
parties have set forth in their briefs their legal analyses of
the liability questions, the record as presented to us is not
sufficiently adequate for us to give the careful and thorough
consideration these issues merit. Since the case must go
back to the District Court, we think these issues would
benefit from further elaboration there in thefirst instance.
On remand, in determining whether the plaintiffs can
prove that the defendants violated the Sherman Act, the
District Court can answer the questions discussed above.
The Court will be able to determine under which of their
variegated antitrust theories the plaintiffs may proceed. In
addition, the Court can clarify the precise temporal scope
and nature of the defendants' antitrust violations.
Explication of this last issue in particular will provide a
better framework for more precise analysis of the questions
to which we turn next (and which will remain a matter in
controversy on remand). At this juncture, because of the
lack of clarity concerning the precise nature and scope of
the plaintiffs' antitrust liability proofs, we will assume that
the plaintiffs can prove that the defendants engaged in
antitrust violations throughout the relevant period. Based
_________________________________________________________________
9. We also note that the present plaintiffs' counsel came to the case late
as well, after much of its present contours had beenfixed.
20
on this assumption, we turn to the issue upon which the
District Court rested its decision: whether the plaintiffs
have offered sufficient proof of fact of damage.
III. Antitrust Claims: Fact of Damage
The primary issue actually before us on the antitrust
claims is whether the plaintiffs have proffered sufficient
evidence to raise a genuine issue of material fact as to
whether the defendants' alleged antitrust violations caused
harm to the plaintiffs. "[A] plaintiff must prove a causal
connection between [the antitrust violation] and actual
damage suffered." Stelwagon Mfg. Co. v. Tarmac Roofing
Sys., Inc., 63 F.3d 1267, 1273 (3d Cir. 1995); see also Rossi
v. Standard Roofing, Inc., 156 F.3d 452, 483 (3d Cir. 1998)
("To recover damages, an antitrust plaintiff must prove
causation, described in our jurisprudence as ``fact of
damage or injury.' " (citations omitted)); II Phillip E. Areeda
& Herbert Hovenkamp, Antitrust Law P 360c2, at 195 ("The
plaintiff must show actual injury that was ``caused' by the
violation."). Although we suspect our factual analysis of loss
and causation would apply equally to both the plaintiffs'
antitrust and RICO claims, we will focus in this section
only on the former. We can put the RICO claim to the side
because, although we are unsure that the District Court's
reasons for dismissing it was correct, we think they should
be dismissed for other reasons, i.e., lack of proximate
causation.
In brief, the plaintiffs' theory of antitrust fact of damage
is as follows: Trone, the Beer World stores, and Fuhrer
engaged in various joint actions, including but not limited
to granting the Beer World stores secret discounts on
wholesale purchases, which resulted in the plaintiffs' losing
business. In support of this theory of fact of damage, the
plaintiffs offer two types of evidence: (1) testimony
concerning customers who no longer shop at the plaintiffs'
stores and their statements about their reasons for not
doing so; and (2) expert opinion testimony concerning the
cause of the plaintiffs' loss of income. We must decide
whether the former type of evidence is admissible, and
21
whether either is sufficient, individually or together, to
establish actual injury and causation in fact.10
A. Customer Evidence
1. Summary of the Evidence: In opposition to the
defendants' motion for summary judgment, the plaintiffs
offered deposition testimony concerning their customers. It
included testimony of various plaintiffs that certain
customers ceased purchasing beer from them after the Beer
World stores opened, and that the customers stated that
they had done so because the Beer World stores had
cheaper beer. The District Court concluded that this
testimony was inadmissible hearsay and therefore could not
meet the plaintiffs' burden of production to defeat the
defendants' motion for summary judgment.
Five of the plaintiffs offered testimony concerning
customers' behavior and statements. This testimony can be
divided into two categories. First, several of the plaintiffs
testified that, during the time at issue in this litigation,
some people who had formerly been their customers
stopped coming to their stores. Carl Altenhof testified that,
"Retail customers that I had as steady customers, I don't
have anymore when Beer World came in . . . ." App. at 750.
Likewise, Douglas J. Berthold stated in his deposition that,
although he could not document his losses, he had"lost
forty percent of [his] business, probably most of them are
one case purchase customers, some of them two case
purchase [sic]." App. at 754. Finally, Kathleen Kapres said
that she lost customers, purportedly to Beer World. App. at
819.
Second, several of the plaintiffs testified that various
customers, some identified and some not, told them that
_________________________________________________________________
10. Given our conclusion that the customer and expert evidence of
causation is sufficient, we need not consider the plaintiffs' other
arguments for reversing the District Court's conclusion that they had not
adduced sufficient evidence of causation: (1) that a price differential
permits an automatic presumption of causation of loss to those who pay
the higher price, see Bogosian v. Gulf Oil Corp., 561 F.2d 434, 455 (3d
Cir. 1977), and (2) that the defendants' own statements and
"admissions" constitute proof of causation.
22
they no longer shopped at the plaintiffs' stores because of
the Beer World stores' operations. Berthold testified that
one customer, David Begg, told him that he was going to
shop at Beer World because "I like selection" and "money
talks." App. at 755. Kapres also stated that she"had quite
a few customers come in and say they wanted the same
deal [lower prices] from me or they were just going to buy
their beer from [Beer World], and I said I just can't give you
that deal." App. at 819. In addition, Paul Kelly identified by
name three customers of his who began to buy from Beer
World, and discussed at length conversations with one of
them in which the customer revealed that he was going to
Beer World because of the prices. App. at 822-27.
As noted previously, the defendants contend that the
plaintiffs have presented evidence of antitrust violations at
most during a fairly brief period of time, for which only
some of the customer evidence is relevant. The District
Court did not consider this issue and, as we have stated,
neither will we. Instead, we assume that the plaintiffs can
establish antitrust violations throughout the relevant
period. On remand, the District Court will have to analyze
the extent of the defendants' antitrust violations and then
determine whether the plaintiffs' evidence of loss and
causation remains sufficient in light of the more specific
temporal scope. If it appears that the defendants did not
engage in antitrust violations during some of the relevant
period, the District Court is free to revisit the question
whether the plaintiffs' proof of causation remains sufficient.
2. Admissibility: The District Court, rely ing on our
decision in Stelwagon Manufacturing Co. v. Tarmac Roofing
Systems, Inc., 63 F.3d 1267 (3d Cir. 1995), held this
evidence inadmissible, finding that the plaintiffs' testimony
concerning their customers' statements was inadmissible
hearsay. It also noted that, although this litigation has been
proceeding for some six years, the plaintiffs had not taken
the simple step of obtaining affidavits from customers
concerning their reasons for ceasing to purchase beer from
the plaintiffs. We disagree with the District Court's reading
of Stelwagon.
In Stelwagon, the plaintiff proffered the testimony of its
employees concerning the statements of their customers.
23
The employees proposed to testify, based on "out-of-court
conversations with Stelwagon customers . . . that the
customers could and did purchase Tarmac MAPs from
780Standard at prices lower than Stelwagon's prices."
Stelwagon, 63 F.3d at 1274. The plaintiff argued that this
testimony was admissible to prove fact of damage, i.e., both
loss and causation, under Federal Rule of Evidence 803(3),
which provides:
The following are not excluded by the hearsay rule,
even though the declarant is available as a witness:. . .
A statement of declarant's then existing state of mind,
emotion, sensation, or physical condition (such as
intent, plan, motive, design, mental feeling, pain, and
bodily health), but not including a statement of
memory or belief to prove the fact remembered or
believed unless it relates to the execution, revocation,
identification, or terms of declarant's will.
Fed. R. Evid. 803(3).
In Stelwagon, the plaintiff offered the customers'
statements to prove, not only causation, i.e., the reason it
lost business -- for which purpose it would be admissible
evidence of motive under Rule 803(3) -- but also loss, i.e.,
the fact that it lost business to the defendants. We
concluded that the customers' statements about why they
purchased from Standard was inadmissible to prove that
they actually did so. See 63 F.3d at 1274 ("Statements that
are considered under the exception to the hearsay rule
found at Fed. R. Evid. 803(3) . . . cannot be offered to prove
the truth of the underlying facts asserted." (footnote
omitted)). As we have explained, " ``[s]tatements of a
customer as to his reasons for not dealing with a supplier
are admissible for this limited purpose,' i.e., the purpose of
proving customer motive, but not as evidence of the facts
recited as furnishing the motives." J.F. Feeser, Inc. v. Serv-
A-Portion, Inc., 909 F.2d 1524, 1535 n.11 (3d Cir. 1990)
(quoting Herman Schwabe, Inc. v. United Shoe Mach. Corp.,
297 F.2d 906, 914 (2d Cir. 1962)).
We think that the District Court's dismissal of the
plaintiffs' evidence on the basis of Stelwagon was
inappropriate. The purpose for which the customers'
24
statements are offered in this case differs in substance from
the purpose for which the court in Stelwagon found them
inadmissible. In that case, the only evidence of actual loss,
i.e., that customers stopped purchasing from the plaintiff,
was the employees' reports that customers had said that
they were no longer buying from the plaintiff because the
plaintiff 's competitors had lower prices. We concluded that
this evidence could not be used to prove such loss. While
the plaintiffs here have also offered similar testimony that
their customers told them that they were purchasing beer
from the Beer World stores and not the plaintiffs, they offer
it only for "the [limited] purpose of proving customer
motive," for which purpose we found such evidence
admissible under Rule 803(3). Stelwagon, 63 F.3d at 1274.11
_________________________________________________________________
11. The defendants also complain that, even if the testimony is otherwise
admissible under Rule 803(3), it is not admissible, particularly for use
at
the summary judgment stage, because the declarants are unidentified or
inadequately identified. First, the defendants contend that this means
the evidence cannot meet the plaintiffs' burden to defeat a motion for
summary judgment because it is not in an admissible form. See Fed. R.
Civ. P. 56(e) ("Supporting and opposing affidavits [introduced at the
summary judgment stage] . . . shall set forth such facts as would be
admissible in evidence . . . ."); Petruzzi's IGA Supermarkets, Inc. v.
Darling-Delaware Co., 998 F.2d 1224, 1234 n.9 (3d Cir. 1993) (noting
that evidence introduced to defeat a motion for summary judgment must
be "capable of being admissible at trial"). In particular, the defendants
argue that, since the declarants are unidentified, there is no way to
ensure that they will be able or willing to testify at trial. We need not
consider this issue, however, because the statements are admissible
hearsay as discussed in the text.
Moreover, contrary to the defendants' apparent suggestion, we do not
think that the fact that the declarants are not specifically identified is
relevant for determining whether their statements fall within the Rule
803(3) hearsay exception. The defendants cite Philbin v. Trans Union
Corp., 101 F.3d 957 (3d Cir. 1996), for the proposition that a hearsay
statement by an unidentified or unknown person"is not ``capable of
being admissible at trial.' " Philbin, 101 F.3d at 961 n.1 (quoting
Petruzzi's, 998 F.2d at 1234 n.9). Philbin is distinguishable, however.
The plaintiff in that case relied on the statement of an unidentified
official of the defendant as direct evidence of the defendant's allegedly
unlawful motive in a Fair Credit Reporting Act suit. The declarant's
identity was important to ensure that he or she was in fact an official of
25
In addition, however, the record contains other non-
hearsay evidence of a type not before the court in
Stelwagon, that the plaintiffs offer to prove the fact of loss,
the issue for which the court in Stelwagon found the
customers' statements inadmissible. Here, the plaintiffs
themselves testified that they knew of customers who used
to purchase beer from them, but no longer did. This is
direct evidence of an actual loss of customers. Although in
Stelwagon we held that customers' hearsay statements
were not admissible to prove lost business, the plaintiffs'
own testimony about the actual behavior of their customers
is not hearsay. Rather, it is admissible evidence of lost
business, although not of the reason therefore. Thus, in the
present case, the plaintiffs' testimony that certain
customers no longer purchased beer from them, coupled
with their testimony concerning the customers' statements
of their motive, which is admissible hearsay under Rule
803(3), are together evidence of the fact of damage.
_________________________________________________________________
the defendant company whose statement would be admissible
nonhearsay under Fed. R. Evid. 801(d). Identity was a critical element of
admissibility.
The customers' statements in this case, however, are different. In a
practical sense, their identities are not important. The relevance of
their
statements depends only on the fact that they were the plaintiffs'
customers, not their particular identities. Furthermore, we do not think
that the admissibility of their statements under the Rule 803(3) hearsay
exception depends on their being identified. Knowing the specific identity
of the declarant will not make the statements more trustworthy evidence
of the declarants' descriptions of their states of mind, the primary
concern in interpreting hearsay exceptions.
In United States v. Mitchell, 145 F.3d 572, 576-77 (3d Cir. 1998), we
held that the identity of the declarant is a substantial, although not
determinative, factor in determining whether a hearsay statement is
admissible under the present sense impression or the excited utterance
exceptions to the hearsay rule. The proposed evidence in that case was
an anonymous note purportedly identifying a getaway car. We held that
the note was not admissible as a present sense impression or excited
utterance because there was no evidence that the unidentified declarant
personally perceived the event or condition about which the statement is
made. With respect to a state-of-mind statement, however, it is only
important that the declarant be the person whose state of mind the
statement concerns, which is true by definition.
26
3. Sufficiency of the Evidence to Prove Causation: The
next question is whether this evidence is sufficient to defeat
a motion for summary judgment. "[O]ur jurisprudence does
not require the summary judgment opponent to match,
item for item, each piece of evidence proffered by the
movant, but rather he or she must only exceed the``mere
scintilla' standard." Rossi, 156 F.3d at 466 (citations and
some quotations omitted). We recently confronted the
question of the sufficiency of this sort of evidence of
causation in antitrust cases. In Rossi, the plaintiff offered,
in opposition to the defendants' motion for summary
judgment, the testimony of several potential customers that
they would have purchased a certain product from him if
he had not been deprived of it in violation of the antitrust
laws. We concluded that this evidence was sufficient
evidence of fact of damage to defeat a motion for summary
judgment:
Rossi has proffered evidence from five specific
customers that they would have purchased GAF
product from Rossi if he had been able to sell it to
them, and Rossi's inability to consummate those sales
(leading to a loss of business and therefore injury) is a
direct result of the alleged antitrust violation-- the
group boycott. In addition, Richard Droesch, Rossi's
partner in the failed Rossi Florence venture, backed
out of that venture at least in part based upon his
understanding that the company would not be able to
get the products it needed, particularly GAF product,
to compete successfully in the market. For all these
reasons, we believe that the record supports Rossi's
allegations that he suffered antitrust injury, and that it
was caused by the defendant's [sic] allegedly unlawful
actions.
156 F.3d at 485. We think that Rossi supports the
conclusion that the plaintiffs' testimony concerning their
customers' actions and statements is sufficient to meet
their burden to produce evidence of loss and causation.
Initially, we reject the defendants' attempt to distinguish
Rossi on the ground that the customers there stated that
they would have purchased product from Rossi but for
circumstances that were the direct and intended result of
27
the conspiracy. As noted previously, we have had to
assume for the purposes of this appeal that the plaintiffs
will be able to prove that the defendants violated the
antitrust laws. The direct result of these violations would be
the Beer World stores' ability to sell beer at a lower price
than the plaintiffs, the precise circumstance the customers
cited as a reason for their actions.
The defendants also submit that Rossi is distinguishable
because in this case there was no admissible evidence that
the customers purchased beer from the Beer World stores.
Of course, the defendants are correct that the testimony at
issue is not admissible to prove that the customers
purchased beer from the defendants. See Stelwagon, 63
F.3d at 1274. But the plaintiffs do not need to prove that
point; in order to establish antitrust liability and damages,
all the plaintiffs must show is that they suffered an
economic loss as a result of the defendants' antitrust
violations; not that the defendants benefitted from that loss
directly. See Rossi, 156 F.3d at 464-65 (plaintiff, in order to
recover on an antitrust claim, must prove an antitrust
violation and "that the plaintiffs were injured as a
proximate result of that" violation (citation omitted)). As
long as the plaintiffs can prove that they lost business, and
that this loss was a result of the defendants' antitrust
violations, they can bring a successful antitrust claim.
At all events, Rossi makes no mention of any evidence, or
even any requirement, that the customers in that case
purchased product from the defendants instead of the
plaintiff. See Rossi, 156 F.3d at 485. For all we know, the
customers who offered testimony in Rossi simply decided
not to purchase GAF product at all, instead of buying it
from the defendants. What the customers did instead of
purchasing product from the plaintiff is irrelevant, so long
as there is evidence that they did not purchase from the
plaintiff because of the defendants' antitrust violations.
In addition to these points, we also find it significant that
neither here nor in Rossi did the customer evidence purport
to prove any specific amount of damages. Although the
plaintiff in Rossi proffered the testimony of five customers,
these customers gave no indication of exactly how much
product they would have bought from him if they could. Yet
28
we concluded that the evidence of causation was sufficient.
This conclusion was driven by the principle that, on review
of a grant of summary judgment, we should focus on
whether there is sufficient evidence of fact of damage in
general, not on the sufficiency of the evidence of a specific
amount of damages. See Rossi, 156 F.3d at 484.
Accordingly, just as in Rossi, the lack of specific evidence of
the total amount of lost beer sales does not preclude our
ultimate conclusion that the customer evidence, especially
in conjunction with the expert evidence discussed next, is
sufficient to meet the plaintiffs' burden of producing
evidence of fact of damage.
B. Expert Evidence
The plaintiffs also offered expert opinion evidence in
support of their contention that the defendants' alleged
antitrust violations caused actual injuries to them. In
particular, they offered the report and testimony of their
primary expert, Garth Seidel, along with the report and
testimony of their rebuttal expert, Brian Sullivan, to that
effect. Neither the defendant nor the District Court raised a
question about the admissibility of Seidel's or Sullivan's
opinion, see Kumho Tire Co. v. Carmichael, 119 S. Ct. 1167
(1999); Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579
(1993). The District Court concluded, however, that this
evidence was insufficient as a matter of law to permit a
finding of causation. In particular, the Court noted that
Seidel's opinion appeared to be based primarily on timing,
and that he did not consider a number of possible
alternative causes of the plaintiffs' losses. It therefore
concluded that Seidel's report was deficient under the
standards we have set forth in previous cases. We disagree.
1. Seidel's Report: Seidel concluded, base d on the facts
provided to him, that "the plaintiffs experienced significant
drops in gross profits in the period subsequent to the start
of Beer World operations and which were caused by the
Beer World Stores' unique advantage." App. at 830. He
began by collecting data on gross profits of the sixteen
plaintiffs from 1980 to 1995, although such information
was not available from every plaintiff for every year, or even
for many of the years. He then made two calculations. First,
29
using the admittedly incomplete data he had, he calculated
the plaintiffs' average annual gross profits for the periods
from 1980-84 and 1985-95. He then estimated that the
plaintiffs' damages were the difference between these two
numbers, multiplied by eleven years and sixteen plaintiffs,
or approximately $6.6 million. Second, he made a similar
calculation, but using only data from the six plaintiffs for
whom data was available for most of the years. This method
gave a damages estimate of $2 million.
Next, he concluded that these lost profits "were caused
by the Beer World Stores' unique advantage." App. at 830.
He based this opinion initially on his conclusion that the
Beer Worlds' ability to purchase beer at a lower wholesale
cost "must have had a significant impact on the market."
App. at 831. He also stated that the Beer World stores'
aggressive price advertising would have magnified the effect
of the special discount. In addition, he examined Fuhrer's
profits between 1989 and 1994, and observed that they
increased substantially during this period. Based on this,
Seidel concluded that the malt-beverage market
experienced no downturn during this time. Third, he noted
that, beginning in 1991 -- after the grand jury investigation
of Trone began -- the Beer World stores' volume of business
declined each year until 1995, while at the same time the
plaintiffs' gross profits increased. Finally, he noted that two
other stores had opened using a "supermarket" approach
similar to the Beer Worlds'. One of them opened shortly
after the Beer World stores, but failed within a matter of
months in spite of aggressive promotions. The other was
open from the mid-1970's to the mid-1990's, but did not
appear to have had any effect on the plaintiffs. App. at 829-
32.
The District Court found Seidel's report inadequate to
meet the plaintiffs' burden of production because it failed to
consider other market forces that could have explained the
plaintiffs' losses. The Court began with the proposition that
"any analysis of antitrust, RICO or similar damage that fails
to exclude or take account of any adverse effects caused by
other factors, including lawful competition on the part of
the defendants, is fatally flawed." Dist. Ct. Op. IV, at 6. It
observed that Seidel's report did not include a comparison
30
of costs and business practices, price advertising, the
availability of pool-buying and other discounts, store size,
purchasing capacity, or proximity to a Beer World store,
any one of which might have provided an alternative
explanation for the plaintiffs' losses. Furthermore, it noted
that Seidel had specifically failed to consider whether any
other differences between the plaintiffs and the Beer World
stores accounted for the plaintiffs' loss of business to the
latter. Given these omissions, the District Court concluded
that Seidel's report provided insufficient evidence of
causation.
The plaintiffs contend that we must reverse the judgment
because the District Court relied, in its legal analysis, on
the district court's opinion in Rossi rejecting Rossi's
proffered expert evidence, which opinion we later reversed
on these exact grounds, although not until well after the
District Court in the present case had issued its opinions.
See Rossi v. Standard Roofing, Inc., 958 F. Supp. 976
(D.N.J. 1997), revd., 156 F.3d 452 (3d Cir. 1998). As this
question is before us on an appeal from a grant of
summary judgment and our review is plenary, we will start
from the premise that it is the defendants's burden to show
that Seidel's report is inadequate to create a genuine issue
of material fact as to causation. We begin with a review of
our case law in this area, and then apply that law to the
evidence before us.
2. Precedent: Stelwagon and Rossi: We have twice
recently considered the sufficiency of expert evidence
offered as proof of causation in antitrust cases. See Rossi,
156 F.3d at 485-87; Stelwagon, 63 F.3d at 1275-76. In
addition to the customer evidence discussed above, the
plaintiff in Stelwagon offered expert opinion evidence to
prove causation. In brief, "based on the assumption that
but for Tarmac's price discrimination, Stelwagon's sales of
MAPs would have tracked its sales of [other] products [not
subject to anticompetitive practices], Dr. Perry concluded
that Stelwagon lost $257,000 in profits as a result of
Tarmac's illegal pricing policy." Stelwagon, 63 F.3d at 1275.12
_________________________________________________________________
12. More specifically, the expert's report based its analysis on two
premises. First, it assumed that Stelwagon's sales of the product at issue
31
We concluded that the expert's testimony, although
admissible evidence, was insufficient by itself to prove that
the antitrust violations had in fact caused Stelwagon's
losses:
Significantly, Dr. Perry's analysis failed to sufficiently
link any decline in Stelwagon's MAPs sales to price
discrimination. The sales may have been lost for
reasons apart from the price discrimination -- reasons
that Dr. Perry's analysis apparently did not take into
account. For example, the evidence showed that
Stelwagon had higher overhead costs than his
competitors. In addition, there was undisputed
evidence that Stelwagon experienced other business
complications during the relevant time period. In 1988,
for example, Stelwagon terminated a vice-president,
two territorial managers and three key employees for
their part in an embezzlement scheme.
Stelwagon, 63 F.3d at 1275. Given that Stelwagon had not
offered any other evidence of loss -- as discussed
previously, its employees' anecdotal testimony concerning
lost customers was not admissible to prove that it actually
lost customers, see Stelwagon, 63 F.3d at 1274-75 -- we
concluded that he could not meet his burden of proof,
Stelwagon, 63 F.3d at 1275-76.
In Rossi, by contrast, we considered an expert opinion
and found it sufficient to prove loss and causation. The
expert in Rossi rested his calculation of damages on two
assumptions:
First, he estimated that Rossi[``s businesses] would
have achieved the same pattern of sales revenues (and
revenue growth) beginning in 1989 and extending to
_________________________________________________________________
during the year in which it did not allegedly suffer antitrust harm were
representative of what the sales would have been in the absence of such
harm. Second, the expert assumed that its sales of this product would
follow a pattern similar to that of other products Stelwagon sold.
Finally,
the expert posited that Stelwagon would have been able to charge the
same retail markup on the product at issue as it did on other products.
Based on these assumptions, the expert calculated Stelwagon's lost sales
and profits. See Stelwagon, 63 F.3d at 1275.
32
2008 that ABC's Morristown sales branch actually
achieved from 1990-93, operating out of the same
location, with Rossi as branch manager. . . . The
second major assumption in the Rockhill Report is that
Rossi would have been able to manage [his proposed
businesses] in the manner that he had run Standard's
Morristown branch from 1984-87. Rockhill used
Standard's Morristown branch financial statements to
develop 14-year averages for [costs] and applied them
to the sales estimate.
Rossi, 156 F.3d at 486 (footnote omitted). Based on these
assumptions, the expert estimated Rossi's losses as a result
of the defendants' antitrust violations.
We determined that this expert evidence was sufficient
proof of causation to defeat a motion for summary
judgment. We began our analysis with the recognition that
the expert's opinion was a "but for" damage model -- one
that "aggregates the defendant's alleged violations and
creates a hypothetical calculation projecting the plaintiff 's
profits and losses ``but for' the defendant's antitrust
violations" -- which several courts have rejected. Rossi, 156
F.3d at 485 (citing Southern Pac. Com. Co. v. American Tel.
& Tel. Co., 556 F. Supp. 825 (D.D.C. 1982), affd., 740 F.2d
980 (D.C. Cir. 1984)); Van Dyk Research Corp. v. Xerox
Corp., 478 F. Supp. 1268 (D.N.J. 1979), affd., 631 F.2d 251
(3d Cir. 1980)). We identified two key problems with the use
of "but for" damage models:
First, they do not attempt to measure the
particularized effects of any specific alleged illegal
activities, but rather rely on an aggregation of injury
from all factors. Second, their hypothetical "but for"
calculations usually rely upon unrealistic ex ante
assumptions about the business environment, such as
assumptions of perfect knowledge of future demand,
future prices, and future costs that tend to overstate
the plaintiff 's damages claim. Thus, using a"but for"
damage model arguably makes it impossible for the
trier of fact to determine what, if any, injury derived
from the defendant's antitrust violations as opposed to
other factors, and courts sometimes reject such models
33
as the basis of either causation or the amount of
injury.
Rossi, 156 F.3d at 486 (citations omitted).
We concluded that, although the Rockhill Report rested
on a "but for" damage model, this did not mean it was
inadequate proof of causation, because it did not have the
usual problems of "but for" damage models. We noted that,
since the Report was based on the actual performance of
other businesses -- the business Rossi managed instead of
running his own and the business he formerly managed--
it did not involve any "unrealistic ex ante assumptions
about the business environment." We concluded that, "This
kind of estimate, while perhaps not one upon which we
would base our own personal investment decisions,
nevertheless is sufficient to establish causation . . . ." Rossi,
156 F.3d at 485.
We also rejected the defendants' argument, upon which
the district court had rested its decision, see Rossi, 958 F.
Supp. at 991, that the Rockhill Report was inadequate
because it failed to consider possible alternative causes of
Rossi's losses. In particular, the defendants contended that
Rossi's businesses failed because: "(1) they were start-up
operations, (2) they were founded during one of the worst
recessions ever to hit the New Jersey housing market, (3)
Rossi, as a manager, failed to control his costs, and/or (4)
Rossi worked on other ventures to the detriment and
ultimate failure of both companies." Rossi , 156 F.3d at 486.
Although we recognized that these explanations might
ultimately prove to be correct, we found that they were
issues of fact best left to the jury, not reasons for
concluding that the Rockhill Report was insufficient
evidence of causation as a matter of law.
3. Application to Seidel's Report: We beli eve that our
jurisprudence supports the conclusion that the plaintiffs,
by offering Seidel's report, have produced sufficient
evidence of causation to defeat a motion for summary
judgment. Here, as in Rossi, Seidel's report rests on
assumptions that are based on past performance, not
guesses as to the future. His opinion was based on the
assumption that the plaintiffs' performance in the years
34
before Beer World entered the Pittsburgh market provided
an appropriate benchmark for their performance thereafter.
This assumption does not rest on any "assumptions of
perfect knowledge of future demand, future prices, and
future costs" of the sort we condemned in Rossi. At most,
it requires some consideration of whether general economic
conditions were substantially similar before and after the
Beer World stores opened. Seidel's observation that
Fuhrer's sales increased substantially during the period
after the Beer World stores opened strongly suggests that
economic conditions were at least as good during this
period. See App. at 831.
The defendants, in response, identify several problems
that they believe render Seidel's report inadequate. In
general, the defendants criticize Seidel's report for failing to
take into account potential alternative causes for the
plaintiffs' losses not attributable to the defendants' actions.13
Seidel stated that, "In my opinion, it does not appear that
the losses in plaintiffs' profits . . . were caused by market
factors other than plaintiffs' competition with the Beer
World stores in the face of the availability to the Beer
Worlds of unique discounts and special services, such as
free delivery." App. at 831. The defendants contend that,
just as we found in Stelwagon that the expert's report was
inadequate because it failed to consider alternative causes,
so must we find Seidel's report inadequate because he
failed to consider certain specific factors that might have
affected the plaintiffs' business success, such as general
economic conditions, changes in their operations during the
relevant time period, or changes in costs.
_________________________________________________________________
13. The defendants also contend that, even if Seidel has shown that the
defendants' acts caused the damages, he has not shown that the
defendants' illegal acts caused damages. The defendants are correct that
Seidel failed to account for many variations in what the defendants did
during the periods that Seidel aggregated for analysis. We cannot
evaluate this contention without a clearer picture of the scope of the
defendants' antitrust violations, however. In the absence of such a
clarification, we will leave it to the District Court to consider this
objection in the first instance after examining the plaintiffs' antitrust
liability theories in greater depth. Only after such a closer examination
can this criticism of Seidel's report be given adequate consideration.
35
Initially, we note that, as discussed above, Seidel does
discuss some of these factors the defendants suggest he
should have -- including general economic conditions --
albeit not to the degree the defendants might prefer. In
addition, he specifically noted a correlation between
declining profits for the Beer World stores and increasing
profits for the plaintiffs after the criminal indictment came
down in 1991. Furthermore, we think that the factors
Seidel failed to explain are more like those at issue in Rossi,
in which we found the export's report acceptable in spite of
certain gaps, than the factors in Stelwagon. In the latter
case, the expert failed to discuss certain factors-- higher
overhead costs and embezzlement by the plaintiff 's
employees -- about which the defendants introduced
specific evidence. In Rossi, by contrast, the defendants
argued that the Rockhill Report was inadequate because of
factors the effects of which were pure speculation on the
defendants' part. Similarly, the defendants here propose
numerous factors extrinsic to the defendants that might
explain the plaintiffs' losses. But they have not directed us
to any point in the record that suggest that these concerns
were actually relevant in this case. Accordingly, we will
leave these questions to be resolved during further
proceedings in the District Court. See Rossi, 156 F.3d at
487 ("[Although o]ne or more of these reasons. . . might
explain Rossi's failure and could conceivably result in a
verdict for the defendants at trial . . . they all involve
factual disputes that need to be resolved by the trier of fact,
not by this court on a motion for summary judgment.").
Finally, the defendants make a number of arguments to
the effect that Seidel's method of calculating the plaintiffs'
losses is unsupported and inappropriate. Seidel's
calculations were based on the average or aggregate gross
profits of the plaintiffs. The defendants contend that this
use of averages was inappropriate, as it ignored potential
differences among the plaintiffs. For instance, it ignores the
problem that data was not available for all of the plaintiffs
for all of the relevant time period. Furthermore, there is no
way to determine based on this calculation how the
damages are to be allocated among the plaintiffs. Finally, it
masks the fact that some of the plaintiffs in fact had higher
gross profits during the relevant period as compared with
36
earlier. The defendants' observations are, of course, correct.
They ignore a vital distinction, however: proof of fact of
damage and proof of the actual amount of damages are two
distinct steps. Cf. Stelwagon, 63 F.3d at 1276 n.19
("Because of our conclusion on the issue of Stelwagon's
entitlement to damages under the Clayton Act [i.e., he
failed to present sufficient evidence to prove causation], we
do not reach Tarmac's argument that the amount of
damages is unsupported by the evidence.").
As we stated in Rossi, at the summary judgment stage
"we are not, as we would be upon reviewing a jury verdict,
determining whether a plaintiff has brought forth sufficient
evidence to justify the actual damages awarded." Rossi, 156
F.3d at 484. Rather, before us is only the question whether
the defendants' unlawful actions caused the plaintiffs'
losses. See 156 F.3d at 484. Although in Rossi we did
specifically note that the Rockhill Report would support a
damages judgment in the amount the expert estimated, we
did so only for the future guidance of the district court, and
not for any purposes related to deciding motions for
summary judgment. See Rossi, 156 F.3d at 486 n.22 ("For
the guidance of the district court on remand, we note that
the Rockhill Report satisfies the relaxed Bigelow standard
of proof for estimating the amount of damages . . . ."
(emphasis added)).
In sum, we believe that, although the question is close,
Seidel's report, like the Rockhill Report in Rossi, is
sufficient to create a genuine issue of material fact
concerning fact of damage. This is in contrast to the expert
evidence offered in Stelwagon, in which the expert's opinion
involved more speculation and failed to explain certain
factors concerning which the defendants had presented
specific evidence at trial.
4. Sullivan's Report: We find additional evidence of loss
and causation, contributing to our ultimate conclusion that
the plaintiffs have adduced sufficient evidence of fact of
damage, in the report of the plaintiffs' rebuttal expert,
Brian Sullivan. Sullivan examined the defendants' expert's
report and rebutted it in part. Although his report focused
primarily on antitrust liability issues, Sullivan observed
that, between 1985 and 1993, beer distributors in
37
Allegheny County failed at a rate nearly twice that in
Pennsylvania as a whole. The plaintiffs argue that, since
the record suggests no other distinction between Allegheny
County and the remainder of the Commonwealth than the
presence of Beer World stores, the logical conclusion is that
these failures were caused by the Beer World stores.
The defendants contend that we cannot consider
Sullivan's report for several reasons. First, they submit that
we cannot do so because he functioned only as the
plaintiffs' rebuttal expert to respond to the defendants'
expert, and that his report and testimony therefore cannot
be introduced to support the plaintiffs' substantive case.
The District Court refused to consider Sullivan's report on
precisely these grounds. We think that that refusal was
inappropriate. See Bowers v. Northern Telecom, Inc., 905 F.
Supp. 1004, 1008 (N.D. Fla. 1995) (holding that labeling of
a witness as a rebuttal expert did not preclude
consideration of his testimony to defeat a motion for
summary judgment). The Federal Rules of Civil Procedure,
and Rule 26(a)(2) governing the disclosure and discovery of
expert witnesses in particular, make no distinction between
the permissible uses of "regular" experts and"rebuttal"
experts. Furthermore, we see no reason to prevent the
plaintiffs from using Sullivan in their case-in-chief at trial.
Accordingly, it is appropriate to consider Sullivan's report
as evidence in opposition to the defendants' motion for
summary judgment.
Second, the defendants submit that the distinction upon
which the plaintiffs base their reasoning is flawed, in that
Sullivan's own report reveals that there were Beer World
stores in other parts of Pennsylvania. Although there may
have been other beer supermarkets in Pennsylvania, as far
as we can determine from the record the only other Beer
World store was one in Harrisburg. We do not think the
existence of this one store can be sufficient to render
Sullivan's opinion a nullity as a matter of law.
Third and last, the defendants argue that Sullivan's
report is irrelevant, since it focuses on predatory pricing
and the Beer World operations in general, rather than the
specific discriminatory discount. Once again, we note that
the record before us is not sufficiently developed for us to
38
address this contention. We will assume for present
purposes that the Beer World stores committed antitrust
violations. Accordingly, we leave the defendants' contention
to the District Court to consider in the first instance. We
conclude that Sullivan's report provides some additional
evidence of causation that, together with Seidel's report,
meets the plaintiffs' burden of production on the issue of
actual loss and causation in fact.
C. Is the Evidence in the Aggregate Sufficient to
Prove Causation in Fact?
At all events, we are satisfied that Seidel's report, as well
as Sullivan's, in conjunction with the customer evidence
discussed above, constitutes sufficient evidence of
causation. In Stelwagon, we noted that there was no
admissible evidence that the plaintiffs had suffered injuries
attributable to the defendants' price discrimination. See
Stelwagon, 63 F.3d at 1275. We therefore held that the
expert's report was not sufficient evidence of causation and
loss. Here, by contrast, there is direct evidence-- i.e., the
plaintiffs' testimony about their customers' behavior -- that
identifies customers whom the plaintiffs lost as a result of
the defendants' actions. See supra section III.A.
Furthermore, there is evidence -- the customers' hearsay
statements, which are admissible under Rule 803(3), in
addition to the expert reports -- of the reasons for such
loss. Thus, the plaintiffs have "adduced evidence of specific
lost transactions showing causation or fact of injury, which
is bolstered by an expert damage report that is not overly
speculative as a matter of law." Rossi, 156 F.3d at 487. We
conclude that all of this evidence taken together defeats the
defendants' motion for summary judgment on the ground
that the plaintiffs have not adduced sufficient evidence of
fact of damage on their antitrust claims.14 Accordingly, we
_________________________________________________________________
14. The defendants offer as an alternative ground for affirming the
dismissal of the plaintiffs' antitrust claim that the plaintiffs have
failed
to show that they suffered an "antitrust injury." Since we have declined
to consider whether the plaintiffs have offered sufficient evidence of
antitrust violations at the present time, we will also refrain from
considering the defendants' contention that the plaintiffs cannot prove
an antitrust injury. See supra Part II.
39
will reverse the District Court's grant of summary judgment
on the antitrust claims, and remand for further
proceedings.
IV. RICO: Proximate Causation
A. Basic Principles
In addition to establishing that the defendants' unlawful
actions in fact caused the plaintiffs' losses, the plaintiffs
must also establish proximate causation, i.e., that this
causal connection is not too remote. Although this
requirement applies to both antitrust and RICO claims, in
this section we focus on the latter, because the plaintiffs'
RICO claim founders on these grounds. A causal
connection simpliciter between the defendants' actions and
the plaintiffs' injuries is insufficient to give rise to a RICO
claim; the plaintiff must show that that connection is
proximate, i.e., not too remote. See Holmes v. Securities
Investor Protection Corp., 503 U.S. 258, 268 (1992);
Steamfitters Local Union No. 420 Welfare Fund v. Philip
Morris, Inc., 171 F.3d 912, 932 (3d Cir. 1999).
The defendants contend that, with respect to the
plaintiffs' RICO claim, the causal connection between the
defendants' racketeering activities -- defrauding the LCB --
is too remote as a matter of law from the plaintiffs' losses
-- lost business. We agree. The LCB and the
Commonwealth more generally were the direct victims of
the defendants' actions; the plaintiffs' losses are at most
derivative of any injuries to the LCB's regulatory mission.
The plaintiffs are simply to remote to be able to bring a
claim based on the defendants' actions.
In Holmes, the Court identified three key factors in
determining whether a RICO claim is based on an injury
too remote from the alleged racketeering activity:
First, the less direct an injury is, the more difficult it
becomes to ascertain the amount of a plaintiff 's
damages attributable to the violation, as distinct from
other, independent, factors. Second, quite apart from
problems of proving factual causation, recognizing
claims of the indirectly injured would force courts to
40
adopt complicated rules apportioning damages among
plaintiffs removed at different levels of injury from the
violative acts, to obviate the risk of multiple recoveries.
And, finally, the need to grapple with these problems is
simply unjustified by the general interest in deterring
injurious conduct, since directly injured victims can
generally be counted on to vindicate the law as private
attorneys general, without any of the problems
attendant upon suits by plaintiffs injured more
remotely.
Holmes, 503 U.S. at 269-70 (citing, inter alia, Associated
General Contractors, Inc. v. California St. Council of
Carpenters, 459 U.S. 519, 540-42 (1983));15 see also
Steamfitters, 171 F.3d at 932 (citing Holmes).
_________________________________________________________________
15. Although the Court in Holmes adopted these three factors for RICO
cases from Associated General Contractors, we recognized in Steamfitters
that the Court in the latter case had outlined six factors relevant to
antitrust proximate causation analysis. See Steamfitters, 171 F.3d at
924. These factors included:
(1) the causal connection between defendant's wrongdoing and
plaintiff 's harm; (2) the specific intent of defendant to harm
plaintiff;
(3) the nature of plaintiff 's alleged injury (and whether it
relates to
the purpose of antitrust laws, i.e., ensuring competition within
economic markets); (4) "the directness or indirectness of the
asserted injury"; (5) whether the "damages claim is . . . highly
speculative"; and (6) "keeping the scope of complex antitrust
trials
within judicially manageable limits," i.e., "avoiding either the
risk of
duplicate recoveries on the one hand, or the danger of complex
apportionment of damages on the other."
Steamfitters, 171 F.3d at 924 (quoting Associated General Contractors,
459 U.S. at 537-38, 540, 542-44). In our discussion of proximate
causation for the RICO claims in Steamfitters , in addition to analyzing
the Holmes factors, we incorporated by reference our discussion of the
Associated General Contractors factors from the antitrust analysis. We
did not express an opinion as to whether the Holmes factors replace the
Associated General Contractors factors for RICO claims or merely
supplement them.
At all events, to the extent the Associated General Contractors factors
are relevant only to antitrust analysis, they are irrelevant in the
present
case. In addition, to the extent that any of the issues raised in these
factors are not included in Holmes, they only weigh against a finding of
41
Both Holmes and Steamfitters clarified how the three
factors set forth above would apply in particular cases.16
_________________________________________________________________
proximate causation. For example, the second factor, specific intent to
injure, is arguably not included in Holmes. To the extent it is not,
however, we think it would be difficult on the present facts to conclude
that the defendants specifically intended to harm the plaintiffs. Although
harm to the plaintiffs may have been a probable ultimate consequence
of the defendants' actions, we do not think they specifically intended to
cause such harm. Accordingly, considering this factor in addition to the
Holmes analysis would only provide an additional reason to conclude
that proximate causation is lacking.
16. In a recent case, we concluded that RICO proximate causation
existed without specifically analyzing the Holmes factors. See Brokerage
Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494 (3d Cir. 1998). That
case is distinguishable, however. The plaintiff BCI had formerly been the
administrator of a pharmacy's self-funded employee health-insurance
plan. When the pharmacy opened a new branch that it wanted to be a
part of U.S. Healthcare's network, U.S. Healthcare essentially forced the
pharmacy to use a U.S. Healthcare affiliate as its health-plan
administrator, rather than the plaintiff. We concluded that, in such
circumstances, proximate causation could exist:
The injury proved by BCI, the loss of its TPA contract with Gary's
[the pharmacy], is not derivative of any losses suffered by
Gary's.
Unlike the injuries suffered by the non-purchasing customers in
Holmes, BCI's injury was not contingent upon any injury to Gary's,
nor is it more appropriately attributable to an intervening cause
that
was not a predicate act under RICO. Here, BCI's[administrator]
relationship with Gary's was the direct target of the alleged
scheme
-- indeed, interference with that relationship may well be deemed
the linchpin of the scheme's success.
Brokerage Concepts, 140 F.3d at 521. The plaintiffs contend, similarly,
that interference with their relationship with their customers, i.e.,
attracting the plaintiffs' customers to shop at Beer World stores, the
precise harm the plaintiffs suffered, is the "linchpin of [Trone's]
scheme's
success." Although it may be true that interference in the relationship
between the plaintiffs and their customers was the linchpin of the
success of Trone's scheme, we think Brokerage Concepts is
distinguishable.
The relationship between the alleged racketeering activities and the
injuries to the plaintiffs are more distant than they were in Brokerage
Concepts. In the latter case, the pharmacy, the party with whom BCI had
42
The factual circumstances of these two cases, which inform
our decision, are briefly summarized in the margin.17
B. Anatomy of the Plaintiffs' RICO Claim
The plaintiffs' RICO claim alleges that the defendants
engaged in racketeering activities by fraudulently obtaining
and retaining licenses to operate beer distributorships.
Specifically, they contend that Trone and others made false
and fraudulent statements to the Pennsylvania LCB in
order to obtain or retain various liquor licenses. The
_________________________________________________________________
a relationship with which U.S. Healthcare interfered, was the direct
target of U.S. Healthcare's alleged racketeering activities, which
included
extortion and commercial bribery. See Brokerage Concepts, 140 F.3d at
521. Here, although the ultimate goal of Trone and the Beer World stores
was presumably to woo customers away from the plaintiffs, the direct
target of its alleged fraudulent scheme was the LCB, not customers.
Unlike Brokerage Concepts, this case involves two third parties, one that
was the target of the defendants' racketeering and another that had a
relationship with the plaintiffs with which the defendants interfered.
17. In Holmes, the plaintiffs (actually the plaintiffs' subrogors,
although
that was not relevant to the result) were customers of broker-dealers
that had failed as a result of the defendants' conspiracy to manipulate
certain stocks. As a result of the broker-dealers' failure, their
customers
suffered losses. The particular plaintiffs in Holmes were customers of the
broker-dealers who never purchased the particular stocks that the
defendants had manipulated. Thus, the plaintiffs' losses were not an
immediate result of the defendants' manipulations, but rather were a
derivative effect of the collapse of the broker-dealers. The Court found
this connection insufficient to establish proximate causation for RICO
claims. See Holmes, 503 U.S. at 271.
Steamfitters involved claims of union health and welfare funds against
tobacco companies. The funds alleged that the tobacco companies had
defrauded the funds by misleading them into believing that tobacco
products were safe and could not be made safer. As a result of this
fraud, the funds did not take steps to reduce their costs by, for example,
attempting to reduce smoking among their participants or undertaking
legal efforts to shift the costs of smoking back to the companies. The
funds were harmed because their participants continued to smoke and
accumulate medical bills that the funds were obligated to pay. We
concluded that this causal chain was too attenuated to satisfy the
requirements of proximate causation. See 171 F.3d at 932-34.
43
plaintiffs themselves best summarize their contention that
the defendants' actions proximately caused their injuries:
[C]ausation in plaintiffs' RICO case . . . is a simple
claim: we say that absent the fraud, the Trone
defendants would not have been able to assemble or
operate the chain of stores, and that only by
assembling the chain -- by "aggregat[ing]" their
purchases, as Mr. Fuhrer put it -- were the Beer
Worlds able to secure the discriminatory discount. The
Trone defendants' brief (at 40) asks rhetorically how
David Trone's fraudulent statements to the LCB caused
the discount, but the above two sentences show exactly
how: absent the fraud, no chain; absent the chain, no
discrimination. It's that simple.
Appellant's Reply Brf. at 13 (emphasis added; alterations in
original). Although this is a clever and well-phrased
summary, we disagree with its conclusion because the
claim does not satisfy the specific factors the Court in
Holmes identified as indicative of proximate causation.18
_________________________________________________________________
18. The plaintiffs argue that, since the defendants' antitrust violations
were a proximate cause of the plaintiffs' losses, a point the defendants
do not -- unlike the issue of causation in fact-- presently contest, the
RICO violations must also be a proximate cause of their losses. They
base this contention on our recognition in Steamfitters that proximate
causation principles for antitrust and RICO claims are closely related.
See Steamfitters, 171 F.3d at 921 ("[T]he standing requirements for RICO
and antitrust claims are similar, and . . . the standing analysis under
these federal laws is drawn from common-law principles of proximate
cause and remoteness of injury . . . .").
The plaintiffs misread Steamfitters. Admittedly, we said in that case
that "much (if not all) of what we have said above in our discussion of
antitrust standing applies to the Funds' RICO claims." See 171 F.3d at
932. But that was simply a recognition that the factual underpinnings of
the causation chains in the funds' antitrust and RICO claims was so
similar. The plaintiffs' theory of antitrust proximate causation in this
case, however, is factually distinct from their RICO theory. Causation in
their antitrust claim rests on the simple notion that the defendants
contracted, combined and conspired to force the wholesalers to offer
them beer at a lower price, which gave them a competitive advantage
over the plaintiffs. Their RICO claim, however, rests on the more
complicated theory of causation discussed in the text. It includes the
44
Reflection on these three factors reveals that the direct
impact of the fraud is primarily on the LCB, not the
plaintiffs.
C. Analysis
1. Directness of the Injury: The first f actor, and the one
on which we focused primarily in Steamfitters , is the
directness of the relationship between the defendants'
actions and the plaintiffs' injuries. See Holmes, 503 U.S. at
269. This is significant because "the less direct an injury is,
the more difficult it becomes to ascertain the amount of a
plaintiff 's damages attributable to the violation as distinct
from other, independent, factors." Holmes, 503 U.S. at 269.
The more difficult it is to distinguish between the effects of
the defendants' legitimate activities and their alleged
racketeering actions on the plaintiffs, the more likely we are
to conclude that proximate causation is lacking.
In Holmes, the Court found this factor indicated a lack of
proximate causation. "If the nonpurchasing customers were
allowed to sue, the district court would first need to
determine the extent to which their inability to collect from
the broker-dealers was the result of the alleged conspiracy
to manipulate, as opposed to, say, the broker-dealers' poor
business practices or their failures to anticipate
developments in the financial markets." Holmes, 503 U.S.
at 272-73. In Steamfitters, we reasoned that
if the Funds are allowed to sue, the court would need
to determine the extent to which their increased costs
for smoking-related illnesses resulted from the tobacco
companies' conspiracy to suppress health and safety
information, as opposed to smokers' other health
problems, smokers' independent (i.e., separate from the
fraud and the conspiracy) decisions to smoke, smokers'
ignoring health and safety warnings, etc.
_________________________________________________________________
additional step that Trone was able to operate the Beer World stores as
a group because of his fraud on the LCB, which enabled him to obtain
discounts which hurt the plaintiffs. This additional step distinguishes
the plaintiffs' RICO and antitrust claims, and bars the inference of
proximate causation they suggest, for reasons amplified in the text,
infra.
45
Steamfitters, 171 F.3d at 933 (footnote omitted).
We believe that this case presents similar difficulties in
ascertaining the proportion of the plaintiffs' losses that can
be attributed to the defendants' alleged racketeering
activity. We think it would be difficult to trace the chain
from the fraud on the LCB to particular actions of the
defendants, and then to particular portions of the plaintiffs'
losses, because the fraud only directly affects the LCB. In
order to determine how the fraud affected the plaintiffs, we
would need to analyze the extent to which the defendants
were permitted to act as they did as a result of the fraud as
opposed to normal operating procedures. More specifically,
focusing solely on the issue of volume discounts, even if we
could say that the plaintiffs' losses were entirely
attributable to the defendants' ability to obtain such
discounts, we would be hard-pressed to say that those
discounts were entirely attributable to Trone's fraud on a
third party, the LCB. Rather, it is likely that the defendants'
ability to obtain these discounts was attributable, in at
least as substantial a part, to the size of the individual Beer
World stores, Trone's negotiating ability, the operating
methodology of the stores, or other legitimate actions.
Accordingly, we conclude that, "As in Holmes [and
Steamfitters], this causation chain is much too speculative
and attenuated to support a RICO claim." Steamfitters, 171
F.3d at 933.
2. Apportionment of Damages: Holmes also directs that
we inquire into the difficulty of apportioning damages
among potential plaintiffs in determining whether
proximate causation is present. "[R]ecognizing claims of the
indirectly injured would force courts to adopt complicated
rules apportioning damages among plaintiffs removed at
different levels of injury from the violative acts, to obviate
the risk of multiple recoveries." Holmes, 503 U.S. at 269. As
a result, where granting plaintiffs relief would require us to
apportion that relief among numerous plaintiffs of different
standing, we are inclined to find an absence of proximate
causation for those less directly involved.
Again, this factor as applied to the facts in Holmes
suggested that proximate causation was missing. The Court
noted that the broker-dealers had suffered at least as much
46
at the hands of the defendants as their customers did, and
thus any determination of liability to the customers would
necessitate an inquiry into the defendants' liability to the
broker-dealers. The Court concluded that the possibility of
treble damages in favor of both groups of plaintiffs militated
in favor of finding no proximate causation for the former.
See Holmes, 503 U.S. at 273 ("[T]he district court would . . .
have to find some way to apportion the possible respective
recoveries by the broker-dealers and the customers, who
would otherwise each be entitled to recover the full treble
damages."). Likewise, in Steamfitters, we noted the potential
difficulty in allocating recovery between the funds and their
participants:
As we noted in our discussion of the Funds' antitrust
claims, more directly injured parties, i.e., smokers,
would be unlikely to bring federal claims against
tobacco companies for the same damages claimed by
the Funds. Yet, as we also noted above, Fund
participants who have not been fully reimbursed for
their out-of-pocket costs that are traceable to
defendants' alleged fraud and conspiracy might bring
RICO or antitrust claims. Therefore, as in Holmes, a
court adjudicating the Funds' RICO claims would need
to consider the appropriate apportionment of damages
between smokers and others such as the Funds who
suffered economic losses as a result of the tobacco
companies' alleged fraudulent acts.
Steamfitters, 171 F.3d at 933.
We believe that these cases support the conclusion that
the defendants' fraud on the LCB did not proximately cause
the plaintiffs' injuries. In particular, we note that the
master distributors from whom the defendants purchased
their beer at an artificially lowered price -- at least
according to the plaintiffs' theory of the case-- suffered an
injury identical to the plaintiffs'. The wholesalers
presumably were paying the same price to brewers for beer,
regardless of the price at which they sold it to distributors.
Any discounts they gave to the Beer World stores as a
result of racketeering violations came out of their own
pockets. Determining how to apportion damages between
the wholesalers and the plaintiffs in this case would require
47
exactly the same sort of apportionment determination
condemned in Holmes and Steamfitters.19 This difficulty in
apportioning damages among the potential plaintiffs
suggests that proximate causation is not present in this
case.
3. Vindication of Claims by Others: Thefinal factor that
the Court in Holmes recognized as significant for proximate
causation analysis was whether the plaintiff 's claim could
be vindicated by another, more directly injured plaintiff.
More specifically, the Court recognized that the searching
inquiry into causation and apportionment of damages
among plaintiffs discussed above is unjustified where the
central focus of RICO in deterring unlawful conduct can be
vindicated by other means. See Holmes, 503 U.S. at 269-70
("[T]he need to grapple with these problems is simply
unjustified by the general interest in deterring injurious
conduct, since directly injured victims can generally be
counted on to vindicate the law as private attorneys
general, without any of the problems attendant upon suits
by plaintiffs injured more remotely."). Where a more directly
affected party is available to vindicate the public interest in
enforcing the law, we have less need to stretch the limits of
proximate causation in RICO cases.
In Holmes, the Court concluded that, since the broker-
_________________________________________________________________
19. The plaintiffs in their supplemental memorandum discussing
Steamfitters contend that we cannot consider the wholesalers in our
Holmes calculus because "they have decided to make their separate
peace with Beer World, no doubt for the same reasons they decided to
acquiesce in this scheme in the first place." Appellant's Post-Arg. Memo.
at 13. While it may be true that the wholesalers in this case have not
attempted to recover from the defendants, we do not think this is
relevant to our Holmes analysis. We do not think the question whether
the defendants' fraud proximately caused the plaintiffs' injuries can turn
on whether some other potential claimants have filed suit. Although the
broker-dealers identified in Holmes as having a potential claim did in
fact sue the defendants in that case, see Holmes , 503 U.S. at 273 &
n.21, we recognized in Steamfitters that the fact that smokers themselves
could bring claims against the tobacco companies was relevant to
determining proximate causation with respect to the funds, even though
the smokers were in fact unlikely to bring claims on their own, see
Steamfitters, 171 F.3d at 933.
48
dealers were available to vindicate the public interest in
deterring racketeering, it was unnecessary to extend
proximate causation analysis to include the customers.
"[T]he law would be shouldering these difficulties [of making
fine distinctions among causes of the plaintiff 's injuries
and apportioning recovery among potential plaintiffs]
despite the fact that those directly injured, the broker-
dealers, could be counted on to bring suit for the law's
vindication." Holmes, 503 U.S. at 273. In Steamfitters,
however, we found this factor to be less helpful. We noted
initially that, although the funds' participants might be able
to pursue RICO claims against the tobacco companies,
granting due deference to the funds' allegations we could
not conclude that their suits would provide the same
deterrence as the funds. We were, however, ultimately
"unconvinced that this distinction [from Holmes was]
sufficient to overcome the concerns about apportioning
damages and, most fundamentally, the remoteness of the
Funds' alleged RICO injuries from any wrongdoing on the
part of the tobacco companies." Steamfitters, 171 F.3d at
933-34 (citation omitted).
The plaintiffs contend that this factor dictates afinding
that proximate causation is present in this case because
there is no other party that was more directly injured or
that will otherwise be able to vindicate the public interest
in deterring racketeering activity of the sort in which the
defendants have engaged. Preliminarily, as noted above, the
master distributors were injured by the defendants'
activities, and accordingly they could presumably serve at
least as well to vindicate the public interest in deterring
violations of the law. More significantly, the LCB-- the
direct victim of the defendants' alleged fraud -- is an
additional possible alternative agent for vindicating the
public interest.
As the plaintiffs point out, the LCB would not be able to
bring a private civil RICO action, since it is not a"person
injured in his business or property by reason of " the
defendants' alleged racketeering violations. 18 U.S.C.
S 1964(c). In spite of the fact that the LCB cannot bring a
private civil RICO action, we think that the LCB and the
Commonwealth of Pennsylvania more generally are in a
49
position to vindicate the public interest in the sense set
forth in Holmes. If the facts justified it, the Commonwealth
could bring a criminal charge against Trone and the other
defendants under the state "little RICO" corrupt
organizations statute, which is virtually identical to the
federal racketeering statute. See 18 Pa. Cons. Stat.
S 911(b). Section 911 includes in particular perjury, false
swearing in official matters, and tampering with official
records as predicate activities which can lead to
racketeering liability. See S 911(h)(1)(i) (" ``Racketeering
activity' means any act which is indictable under any of the
following provisions of this title: . . . Chapter 49 (relating to
falsification and intimidation)."); see also 18 Pa. Cons. Stat.
S 4902(a) (defining perjury); S 4903 (defining false swearing
in official matters); S 4911 (defining tampering with public
records or information).
In fact, the Commonwealth indicted Trone on state
racketeering charges predicated on tampering with public
records and perjury before the LCB. See App. at 99. These
charges arose out of the same activities that the plaintiffs
identify as the racketeering acts upon which their RICO
claim is predicated. Although the indictment was dismissed,20
this does not affect our ultimate conclusion that the
Commonwealth could vindicate the public interest. The
racketeering indictment charged Trone only with
racketeering predicates in which he participated as a
principal, and was dismissed because all but one of these
was found wanting. But the indictment included perjury
charges against others involved in the Beer World
_________________________________________________________________
20. See App. at 43. The court dismissed the tampering charges on the
ground that they should have been brought under a more specific
statute, the Liquor Code, see Pa. Stat. Ann. tit. 47, S 4-436(j) (West
1997), which makes false statements on liquor license applications a
misdemeanor. See App. at 25-31. The alleged tampering therefore also
could not serve as part of the pattern of racketeering activity necessary
to support the racketeering charge, since Liquor Code violations are not
specified as racketeering activities in section 911. See App. at 39 n.6;
18
Pa. Cons. Stat. S 911(h). Since the only remaining racketeering activity
was one alleged instance of perjury on the part of Trone, the court
concluded that there was no "pattern of racketeering activity" as required
to support a racketeering charge. See App. at 40.
50
operations, which, like the remaining charge against Trone,
were eventually nolle prossed. See App. at 98, 100. The
indictment could have charged these other acts of perjury
as predicates to the racketeering charge against Trone,
which would have created the pattern of racketeering
activity necessary to support a "little RICO" charge.
Although the Commonwealth cannot now bring civil RICO
claims against the defendants here, given the possibilities
set forth above, we do not think this brings it outside the
scope of the third Holmes factor. The Court's primary
concern in Holmes was to ensure that some plaintiff be
available to vindicate the law's "general interest in deterring
injurious conduct." Holmes, 503 U.S. at 269. A civil RICO
action is not specifically required to vindicate this general
deterrence interest. See Laborers Local 17 Health & Benefit
Fund v. Philip Morris, Inc., 172 F.3d 223, 235 (2d Cir. 1999)
(concluding that the possibility of independent tort claims
by smokers, or subrogated claims based thereon by union
health funds, would be sufficient to satisfy the
requirements of the third Holmes factor). Although not
providing for treble damages, we believe that the prospect
of state criminal racketeering charges would provide an
adequate deterrent to lawless conduct of the type alleged
here to satisfy the concerns embodied in Holmes.21
4. Summary: At all events, even to the ext ent that we
have questions about whether the possibility of the
_________________________________________________________________
21. Judge Wellford in his dissent contends that we cannot consider the
wholesalers or the Commonwealth as potential alternative agents for the
vindication of the public interest, because in this case none of them
brought suit against Trone and the Beer World stores. We think this
circumstance is irrelevant to determining whether the plaintiffs' injuries
are too remote from the defendants' actions to be a proximate cause for
the RICO claim. The post-injury actions of intervening parties cannot
make the plaintiffs' losses more or less of a direct result of the
defendants' actions. The only question is whether these intervening
parties are ones that possibly could take steps to deter illegal activity
as
contemplated in Holmes. See Holmes, 503 U.S. at 269-70 ("[D]irectly
injured victims can generally be counted on to vindicate the law as
private attorneys general . . . ." (emphasis added)); 503 U.S. at 273
("[T]hose directly injured . . . could be counted on to bring suit for the
law's vindication . . . .").
51
Commonwealth bringing criminal racketeering charges
against Trone and the other defendants falls within the
scope of the third Holmes factor, such questions cannot
alter our ultimate conclusion, based on the Holmes factors
as a whole, that proximate causation is lacking here. To
paraphrase Steamfitters, "we are unconvinced that [the
potential lack of alternative plaintiffs] is sufficient to
overcome the concerns about apportioning damages and,
most fundamentally, the remoteness of [the plaintiffs']
alleged RICO injuries from any wrongdoing on the part of
[Trone]." Steamfitters, 171 F.3d at 933-34. Considered as a
whole, the Holmes factors dictate the conclusion that the
plaintiffs cannot demonstrate a proximate causal
connection between their injuries and the defendants'
alleged racketeering activities.
D. Policy Issues: Were the Plaintiffs the Intended
Beneficiaries of the Liquor Code?
The plaintiffs also contend that proximate causation is
present in a civil RICO case where the alleged racketeering
conduct effects violations of a regulatory regime designed to
protect the plaintiffs. See, e.g., Rodriguez v. McKinney, 878
F. Supp. 744, 747-49 (E.D. Pa. 1995); Trautz v. Weisman,
819 F. Supp. 282, 287 (S.D.N.Y. 1993); see also In re
Orthopedic Bone Screw Prods. Liab. Litig., 159 F.3d 817,
826-27 (3d Cir. 1998) (recognizing a similar principle in the
context of state common-law fraud claims). Although this
may be a valid principle, we find it inapposite in the
present case, as the condition of its application is not
present here.
The purpose of the Pennsylvania Liquor Code is to
promote temperance, not to protect small-business owners
or ensure competition among beer retailers:
The provisions of [the Liquor Code] are intended to
create a system for distribution that shall include the
fixing of prices for liquor and alcohol and controls
placed on prices for malt and brewed beverages, and
each of which shall be construed as integral to the
preservation of the system, without which system the
Commonwealth's control of the sale of liquor and
alcohol and malt and brewed beverages and the
52
Commonwealth's promotion of its policy of temperance
and responsible conduct with respect to alcoholic
beverages would not be possible.
Pa. Stat. Ann. tit. 47, S 1-104(d) (West 1997) (emphasis
added); see also S 1-104(a) ("This act shall be deemed an
exercise of the police power of the Commonwealth for the
protection of the public welfare, health, peace and morals of
the people of the Commonwealth and to prohibit forever the
open saloon . . . ."); Altshuler v. Pennsylvania Liquor Control
Bd., ___ A.2d ___, No. 2126 C.D.1998, 1999 WL 298228, at
*3 (Pa. Commw. Ct. May 13, 1999) ("The purpose of the
Liquor Code is not to promote the sale of liquor, rather it is
to regulate and restrain the sale of liquor."). At least one
court has recognized that the Liquor Code was, in fact, not
at all intended to protect the economic interests of liquor
retailers. See Lancaster County Tavern Assn. v.
Pennsylvania Liquor Control Bd., 14 Pa. D. & C.3d 381
(Lancaster Cty. C.P. Ct. 1980).
The plaintiffs submit that even if the purpose of the
Liquor Code is not to protect retailers like themselves, the
effect of the Code, and one of the goals of the LCB in
enforcing it, is to protect retailers and competition. But
although the LCB's efforts to enforce the Code may have
resulted largely in a predominance of beer retailers similar
to the plaintiffs, that does not render large-scale stores like
the Beer World stores automatically illegal. Accordingly, we
do not think that the principle of Rodriguez, were we to
adopt it, would compel a finding of proximate causation. We
will therefore affirm the District Court's grant of summary
judgment on the plaintiffs' RICO claim.
For the foregoing reasons, the judgment of the District
Court will be reversed to the extent that it granted
summary judgment to the defendants on the plaintiffs'
antitrust claims, but affirmed in all other respects, and the
case will be remanded to the District Court for further
proceedings in accordance with this opinion.
53
WELLFORD, Senior Circuit Judge, concurring in part and
dissenting in part:
I concur in Chief Judge Becker's excellent analysis of the
antitrust claims of plaintiffs against the defendants. I
therefore share in the conclusion that the district court was
in error in granting summary judgment to defendants on
the antitrust claims before the court.
My disagreement is in respect to the treatment of the
RICO claims. I dissent in that respect with some
trepidation, realizing that Chief Judge Becker has recently
authored several RICO decisions of this court flowing from
the Supreme Court decision in Holmes v. Securities Investor
Protection Corp., 503 U.S. 258 (1992). I begin, then, with an
analysis of Holmes in respect to the RICO issues in this
case.
First, however, I construe plaintiffs' RICO claim to be as
follows: as an intended consequence of defendants' alleged
predicate fraudulent actions and activities in attaining a
special status as a Pennsylvania beer retailer/distributor
and obtaining through that fraud from the state a special
license and status (contrary to any legal entitlement),
plaintiffs were economically damaged. The relevant cases
discuss in the RICO context whether plaintiffs have
standing to bring the claim against a defendant, and
whether plaintiffs can establish commercial damages as a
proximate cause of defendant's illegal predicate acts.
Holmes involved the issue of standing and of proximate
cause under RICO by a party asserting securities fraud.
Plaintiff, Securities Investor Protection Corp. ("SIPC"), was
neither a buyer nor a seller of alleged manipulated stocks
orchestrated by defendants. SIPC sued seventy-five
defendant broker/dealers whose alleged illegal predicate
acts brought about the collapse of several brokerage
concerns which were members of SIPC, causing it to pay
millions in damages to the failed member brokerage
houses. Holmes acknowledged that S 1964(c) of RICO was
"modeled on the civil-action provision of the federal
antitrust laws." Id. at 267. We agree that plaintiffs in this
case have set out an antitrust claim that survives summary
judgment treatment. Holmes interpreted proximate cause in
its RICO analysis:
54
At bottom, the notion of proximate cause reflects"ideas
of what justice demands, or of what is administratively
possible and convenient." W. Keeton, D. Dobbs, R.
Keeton, & D. Owen, Prosser and Keeton on Law of Torts
S 41, p. 264 (5th ed. 1984). . . . [One requirement is]
some direct relation between the injury asserted and
the injurious conduct alleged.
Id. at 268.
Was the plaintiff in Holmes simply complaining about
"harm flowing merely from the misfortunates visited upon a
third person by the defendant's acts . . ."? Id. Holmes held
that SIPC was complaining about an indirect injury, but it
is important to consider why it reached that result. First,
Holmes noted in footnote 19 that SIPC was not claiming to
sue under a claimed right of any customer who actually
purchased the manipulated securities. Id. at 272 n.19.
Second, it is important to note that in Holmes , the
broker/dealers, directly defrauded, who went into
bankruptcy "have in fact sued" the same defendants. Id. at
273. Those third parties might then vindicate the public
interest in recouping the economic damages caused by the
fraudulent defendants, and in punishing them by treble
damages.
Because of the potential of multiple claims against
defendants seeking damages as a direct result of the same
illegal predicate acts and the necessity of difficult and
complex apportionment, Holmes decided in favor of
defendants that SIPC's damages claims did not meet the
proximate cause test. Our case is a very different one
factually from Holmes. Plaintiffs here assert actions arising
from defendants' illegally attained status based on asserted
fraud perpetrated on the state of Pennsylvania. This does
not, in my view, vindicate the rights of private parties, such
as plaintiffs, arising out of that fraud.1 Unlike defrauded
third party customers who had also sued defendants for the
RICO actions in Holmes, neither Fuhrer, nor any other
master distributor, sought any such damages against the
Trone defendants for the alleged illegal predicate activity.
_________________________________________________________________
1. As Chief Judge Becker indicates, Pennsylvania may only seek criminal
penalties and withdrawal of defendants' special license, not damages.
55
Indeed, Fuhrer denied that any such illegal activity took
place, and is an alleged co-conspirator in the antitrust
activity.
In sum, I cannot construe Holmes as helpful to
defendants in this case. Steamfitters Local Union Fund No.
420 v. Philip Morris, Inc., 171 F.3d 912 (3d Cir. 1999), I
think, is distinguishable. In Steamfitters, customers or
purchasers of the tobacco products had brought suit, or
might be expected to bring suit, to vindicate plaintiff 's
clearly indirect claim. These customers or purchasers had
varying degrees of proximate contributory or comparative
negligence or knowledge about the danger of the tobacco
product used or sold to them. Respectfully, I do not believe
plaintiffs' claims in the instant case to be as attenuated as
in Steamfitters. It is closer to the standing and proximate
causal relationship of plaintiff in Brokerage Concepts, Inc. v.
U.S. Healthcare, Inc., 140 F.3d 494 (3d Cir. 1998), in my
view.
I do, therefore, respectfully dissent on the RICO element
of this difficult case. I would hold that we should reverse
and remand on both the antitrust and RICO claims.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
56