DocketNumber: 46
Judges: Fortas, Harlan
Filed Date: 4/28/1966
Status: Precedential
Modified Date: 10/19/2024
delivered the opinion of the Court.
This is a civil action brought by the United States to enjoin the appellees from participating in an alleged conspiracy to restrain trade in violation of § 1 of the Sherman Act.
I.
The appellees are the General Motors Corporation, which manufactures, among other things, the Chevrolet line of cars and trucks, and three associations of Chevrolet dealers in and around Los Angeles, California.
Beginning in the late 1950’s, “discount houses” engaged in retailing consumer goods in the Los Angeles area and “referral services”
The relationship with the franchised dealer took var-c ious forms. One arrangement was for the discounter to refer the customer to the dealer. The car would then be offered to him by the dealer at a price previously agreed upon between the dealer and the discounter. In 1960, a typical referral agreement concerning Chevrolets provided that the price to the customer was not to exceed $250 over the dealer’s invoiced cost. For its part in supplying the customer, the discounter received $50 per sale.
Another common arrangement was for the discounter itself to negotiate the sale, the dealer’s role being to furnish the car and to transfer title to the customer at the direction of the discounter. One dealer furnished Chev-rolets under such an arrangement, charging the discounter $85 over its invoiced cost, with the discounter getting the best price it could from its customer.
These were the principal forms of trading involved in this case, although within each there were variations,
Approximately a dozen of the 85 Chevrolet dealers in the Los Angeles area were furnishing cars to discounters in 1960. As the volume of these sales grew, the nonparticipating Chevrolet dealers located near one or more of the discount outlets
On June 28, 1960, at a regular meeting of the appellee Losor Chevrolet Dealers Association, member dealers discussed the problem and resolved to bring it to the attention of the Chevrolet Division’s Los Angeles zone manager, Robert O’Connor. Shortly thereafter, a delegation from the association called upon O’Connor, presented evidence that some dealers were doing business with the discounters, and asked for his assistance. O’Connor promised he would speak to the offending dealers. When no help was forthcoming, Owen Keown, a director of Losor, took matters into his own hands. First, he spoke to Warren Biggs and Wilbur Newman, Chevrolet dealers who were then doing a substantial business with discounters. According to Keown’s testimony, Newman told him that he would continue the practice “until . . . told not to by” Chevrolet, and that “when the Chevrolet Motor Division told him not to do it, he
Keown then reported the foregoing events at the association’s annual meeting in Honolulu on November 10, 1960. The member dealers present agreed immediately to flood General Motors and the Chevrolet Division with letters and telegrams asking for help. Salesmen, too, were to write.
Hundreds of letters and wires descended upon Detroit — with telling effect. Within a week Chevrolet’s O’Connor was directed to furnish his superiors in Detroit with “a detailed report of the discount house operations ... as well as what action we in the Zone are taking to curb such sales.”
By mid-December General Motors had formulated its response. On December 15, James M. Roche, then an executive vice president of General Motors, wrote to some of the complaining dealers. He noted that the
General Motors personnel proceeded to telephone all area dealers, both to identify those associated with the discounters and to advise nonparticipants that General Motors had entered the lists. The principal offenders were treated to unprecedented individual confrontations with Cash, the regional manager. These brief meetings were wholly successful in obtaining from each dealer his agreement to abandon the practices in question. Some capitulated during the course of the four- or five-minute meeting, or immediately thereafter.
There is evidence that unanimity was not obtained without reference to the ultimate power of General Motors. The testimony of dealer Wilbur Newman was that regional manager Cash related a story, the relevance of which was not lost upon him, that in handling children, “I can tell them to stop something. If they don’t do it ... I can knock their teeth down their throats.” By mid-January General Motors had elicited from each dealer a promise not to do business with the discounters. But such agreements would require policing— a fact which had been anticipated. General Motors earlier had initiated contacts with firms capable of performing such a function. This plan, unilaterally to police the agreements, was displaced, however, in favor of a joint effort between General Motors, the three ap-pellee associations, and a number of individual dealers.
On December 15, 1960, representatives of the three appellee associations had met and appointed a joint committee to study the situation and to keep in touch with
General Motors collaborated with these policing activities. There is evidence that zone manager O’Connor and a subordinate, Jere Faust, actively solicited the help of individual dealers in uncovering violations. Armed with information of such violations obtained from the dealers or their associations, O’Connor or members of his staff would ask the offending dealer to come in and talk. The dealer then was confronted with the car purchased by the “shopper,” the documents of sale, and in most cases a tape recording of the transaction. In every instance, the embarrassed dealer repurchased the car, sometimes at a substantial loss, and promised to stop such sales. At the direction of O’Connor or a subordinate, the checks with which the cars were repurchased were
O’Connor testified that on no occasion did he “force” a dealer to repurchase; he merely made the opportunity available. But one dealer testified that when an assistant zone manager for the Chevrolet Division asked him to come in and talk about discount sales, “he specified a sum of money which I was to bring with me when I came down and saw him. ... I kept the appointment and brought a cashier’s check. I knew when I came down to Los Angeles that I was going to repurchase an automobile . . . .” Another dealer testified that upon being confronted with evidence that one of his cars had been purchased through a referral service, he not only bought it back (without questioning the correctness of the price exacted) but also fired the employee responsible for the transaction — although the employee had been commended by the Chevrolet Division a few weeks earlier as the “number one fleet salesman” in the 11-state Pacific region.
By the spring of 1961, the campaign to eliminate the discounters from commerce in new Chevrolet cars was a success. Sales through the discount outlets seem to have come to a halt. Not until a federal grand jury commenced an inquiry into the matters which we have sketched does it appear that any Chevrolet dealer resumed its business association with the discounters.
II.
On these basic facts, the Government first proceeded criminally. A federal grand jury in the Southern District of California‘returned an indictment. After trial, the defendants were found not guilty. The present civil action, filed shortly after return of the indictment, was then brought to trial.
The Government invites us to join in the assumption, only for purposes of this case, that the “location clause” encompasses sales by dealers through the medium of discounters. But it urges us to hold that, so construed, the provision is unlawful as an unreasonable restraint of trade in violation of the Sherman Act.
We need not reach these questions concerning the meaning, effect, or validity of the “location clause” or of any other provision in the Dealer Selling Agreement, and we do not. We do not decide whether the “location
The District Court decided otherwise. It concluded that the described events did not add up to a combination or conspiracy violative of the antitrust laws. But its conclusion cannot be squared with its own specific findings of fact. These findings include the essentials of a conspiracy within § 1 of the Sherman Act: That in the summer of 1960 the Losor Chevrolet Dealers Association, “through some of its dealer-members,” complained to General Motors personnel about sales through discounters (Finding 34); that at a Losor meeting in November 1960 the dealers there present agreed to embark on a letter-writing campaign directed at enlisting the aid of General Motors (Finding 35); that in December and January General Motors personnel discussed the matter with every Chevrolet dealer in the Los Angeles area and elicited from
These findings by the trial judge compel the conclusion that a conspiracy to restrain trade was proved.
These factors do not justify the result reached. It is of no consequence, for purposes of determining whether there has been a combination or conspiracy under § 1 of the Sherman Act, that each party acted in its own lawful interest. Nor is it of consequence for this purpose whether the “location clause” and franchise system are lawful or economically desirable. And although we regard as clearly erroneous and irreconcilable with its other findings the trial court’s conclusory “finding” that there had been no “agreement” among the defendants and their alleged co-conspirators, it has long been settled that explicit agreement is not a necessary part of a Sher
Neither individual dealers nor the associations acted independently or separately. The dealers collaborated, through the associations and otherwise, among themselves and with General Motors, both to enlist the aid of General Motors and to enforce dealers’ promises to forsake the discounters. The associations explicitly entered into a joint venture to assist General Motors in policing the dealers’ promises, and their joint proffer of aid was accepted and utilized by General Motors.
Nor did General Motors confine its activities to the contractual boundaries of its relationships with individual dealers. As the trial court found (Finding 39), General Motors at no time announced that it would terminate the franchise of any dealer which furnished cars to the discounters.
As Parke Davis had done, General Motors sought to elicit from all the dealers agreements, substantially interrelated and interdependent, that none of them would do business with the discounters. These agreements were hammered out in meetings between nonconforming dealers and officials of General Motors’ Chevrolet Division, and in telephone conversations with other dealers. It was acknowledged from the beginning that substantial unanimity would be essential if the agreements were to be forthcoming. And once the agreements were secured, General Motors both solicited and employed the assistance of its alleged co-conspirators in helping to police them. What resulted was a fabric interwoven by many strands of joint action to eliminate the discounters from participation in the market, to inhibit the free choice of franchised dealers to select their own methods of trade and to provide multilateral surveillance and enforcement. This process for achieving and enforcing the desired ob
There can be no doubt that the effect of the combination or conspiracy here was to restrain trade and commerce within the meaning of the Sherman Act. Elimination, by joint collaborative action, of discounters from access to the market is a per se violation of the Act.
In Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U. S. 207, the Court was confronted with the question whether “a group of powerful businessmen may act in concert to deprive a single merchant, like Klor, of the goods he needs to compete effectively.” 359 U. S., at 210. The allegation was that manufacturers and distributors of electrical appliances had conspired among themselves and with a major retailer, Broadway-Hale, “either not to sell to Klor’s [ Broadway-Hale’s next-door neighbor and competitor] or to sell to it only at discriminatory prices and highly unfavorable terms.” 359 U. S., at 209. The Court concluded that the alleged group boycott of even a single trader violated the statute
The principle of these cases is that where businessmen concert their actions in order to deprive others of access to merchandise which the latter wish to sell to the public, we need not inquire into the economic motivation underlying their conduct. See Barber, Refusals To Deal Under the Federal Antitrust Laws, 103 U. Pa. L. Rev. 847, 872-885 (1955). Exclusion of traders from the market by means of combination or conspiracy is so inconsistent with the free-market principles embodied in the Sherman Act that it is not to be saved by reference to the need for preserving the collaborators’ profit margins or their system for distributing automobiles, any more than by reference.to the allegedly tortious conduct against which a combination or conspiracy may be di
We note, moreover, that inherent in the success of the combination in this case was a substantial restraint upon price competition — a goal unlawful per se when sought to be effected by combination or conspiracy. E. g., United States v. Parke, Davis & Co., 362 U. S. 29, 47; United States v. Socony-Vacuum Oil Co., 310 U. S. 150, 223. And the per se rule applies even when the effect upon prices is indirect. Simpson v. Union Oil Co., 377 U. S. 13, 16-22; Socony-Vacuum Oil Co., supra.
There is in the record ample evidence that one of the purposes behind the concerted effort to eliminate sales of new Chevrolet cars by discounters was to protect franchised dealers from real or apparent price competition. The discounters advertised price savings. See n. 7, supra. Some purchasers found and others believed that discount prices were lower than those available through the franchised dealers. Ibid. Certainly, complaints about price competition were prominent in the letters and telegrams with which the individual dealers and salesmen bombarded General Motors in November I960.
Accordingly, we reverse and remand to the United States District Court for the Southern District of California in order that it may fashion appropriate equitable relief. See United States v. Parke, Davis & Co., supra, at 47-48.
It is so ordered.
The statute reads in relevant part: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. . . .” 26 Stat. 209, 15 U. S. C. § 1 (1964 ed.).
Named as co-conspirators but not as defendants are “[t]he officers, directors, and members of [the three associations], certain officers and employees of such members, certain officers and employees of General Motors, other Chevrolet dealers in the Southern California area, and others to the plaintiff unknown . . . .”
Since the evidence does not consistently distinguish between “discount houses” and “referral services,” based either on the variety of goods offered to the public or on the nature of the arrangement between the establishment and the franchised dealer which supplied it with cars, we shall hereinafter use the term “discounter” to embrace all such establishments.
One dealer, for example, paid its referral service one-third of the gross profit on each sale, up to $75, there being no fixed price at which the sale was to take place. The same dealer earlier had paid a flat fee of $17.50 for every referral, whether or not the sale was consummated.
At least one discount house actually purchased its cars from cooperative dealers, then resold them to its customers. In this situation, which in the trade is referred to as “bootlegging,” the customer does not receive a new-car warranty. General Motors, while disapproving of the practice, does not assert that it violates the “location clause.” In those arrangements against which General Motors and the associations did direct their efforts, title to the new car passed directly from dealer to retail customer, who thus obtained a new-car warranty and service agreement.
There must also be distinguished the ubiquitous practice of using “bird dogs” — informal sources who steer occasional customers toward a particular dealer, in return for relatively small fees — often a bottle
As the District Court found, 70% of the local Chevrolet dealers were located within five miles of one or more of the 23 discount house or referral outlets.
There is evidence in the record that discount sales undercut the prices at which franchised dealers were able to, or chose to, compete. Two purchasers of Chevrolets, one on referral and the other in a discount house “sale,” testified that they had “shopped” other dealers but found the discount and referral prices lower. Dealers and their salesmen complained to General Motors about sales lost through inability to meet the discounters’ price. Moreover, the discounters advertised and actually provided auto loans at interest rates substantially lower than those offered by G. M. A. C., General Motors’ financing subsidiary.
There is also evidence that it was not just price itself which induced customers to purchase Chevrolets through the discounters. One customer testified that he preferred the discount house because he thereby avoided the haggling over price which seems an inevitable facet of purchasing a car in the orthodox way. Others apparently assumed, without bothering to confirm by comparison shopping, that “discount” stores would offer lower prices. This assumption was fed
Dealer Biggs put the same sentiments into a letter to both Keown and Chevrolet’s zone manager O’Connor, written on November 5, 1960. The day before, in O’Connor’s presence, Keown had challenged Biggs to justify his dealings with the discounters. Biggs wrote: “We would be most reluctant to discard an account as good as this one without rather concrete assurance that it would not immediately be picked up by another Chevrolet dealer.” Two weeks later, O’Connor forwarded Biggs' letter to General Motors officials in Detroit.
In Keown’s words, “We were seeking the assistance of the higher echelon officials of Chevrolet and General Motors in bringing about an end to the discount house sale of Chevrolets.”
O’Connor’s report, dated November 22, recounted that “zone management” had talked with the offending dealers “in an attempt to have them desist,” and that “[o]ur Dealer Associations have formed a committee to call on the supplying dealers and have asked them and have attempted to persuade them to discontinue this practice.” Supported by a copy of dealer Biggs’ letter, see n. 8, supra, O’Connor predicted that “many dealers will cease this type of business if they had any assurance that the account would not be picked up by some other dealer, immediately upon relinquishment.”
Roche wrote to those dealers who had complained directly to John Gordon, then president of General Motors. On December 29, 1960, a virtually identical letter went out to all General Motors dealers throughout the Nation, under the signature of the general sales managers for the respective divisions.
One dealer testified that he abruptly terminated arrangements long maintained with two discount houses, despite the fact that one of these connections owed him $20,000 and the other $28,000. In the preceding four weeks the latter had reduced its indebtedness by $52,000 and could reasonably have been expected to erase it completely within a few weeks. The dealer anticipated that upon cancellation of the accounts these debts would become uncollectible. His fears were justified. The accounts were terminated. The debts remained unpaid.
According to Francis Bruder, a dealer who had been doing business with the discounters since 1957, “Cash told me that he felt certain that the other dealers would discontinue dealing with discount houses and referral services as well. I left this meeting with the impression that every dealer who had been doing business with a discount house or referral service would soon quit.”
This was precisely the impression General Motors had intended to implant. As was explained in an inter-office memorandum to the general sales manager of General Motors’ Chevrolet Division, “[All dealers were talked to] in order that every dealer with whom the subject was discussed would know that a similar discussion was being held with all other dealers so that, if certain dealers should elect to discontinue their cooperation with a discount house, we might be able to discourage some other dealer who might be solicited from starting the practice.”
The District Court characterized this December 15 meeting as the first between representatives of the three associations, pertaining to the problem of discount house and referral sales. However, as we have previously noted, n. 10, supra, O’Connor reported to General Motors three weeks earlier, on November 22, that the three associations had formed a committee which already had called upon nonconforming dealers. The record does not enable us to resolve this factual conflict, nor is its resolution important. On either version, the appellee associations entered into an explicit agreement to act together to eliminate the new mode of intrabrand competition.
The Government’s complaint contains no reference to the “location clause,” and the Government concedes that its case was tried on a conspiracy theory, the defendants injecting the contractual issue by way of defense. Trial counsel for the Government did advert to the clause in the District Court, but it does not appear that he challenged its validity, as construed, in the same sense ..that the Government does here. See Trial Transcript, pp. 9, 17-18. In light of our disposition of the case, we have no occasion to consider whether the Government’s argument directed to the clause, as construed, is properly before us.
We note that, as in United States v. Parke, Davis & Co., 362 U. S. 29, 44-45, the ultimate conclusion by the trial judge, that the defendants’ conduct did not constitute a combination or conspiracy-in violation of the Sherman Act, is not to be shielded by the “clearly erroneous” test embodied in Rule 52 (a) of the Federal Rules of Civil Procedure. That Rule in part provides: “Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity- of the trial court to judge of the credibility of the witnesses.” As in Parke Davis, supra, the question here is not one of “fact,” but consists rather of the legal standard required to be applied to the undisputed facts of the case. See United States v. Singer Mfg. Co., 374 U. S. 174, 194, n. 9; United States v. Mississippi Valley Co., 364 U. S. 520, 526, and cases there cited.
Moreover, the trial court’s customary opportunity to evaluate the demeanor and thus the credibility of the witnesses, which is the rationale behind Rule 52 (a) (see United States v. Oregon State Med. Soc., 343 U. S. 326, 331-332), plays only a restricted role here. This was essentially a “paper case.” It did not unfold by the testimony of “live” witnesses. Of the 38 witnesses who gave testimony, only three appeared in person. The testimony of the other 35 witnesses was submitted either by affidavit, by deposition, or in the form of an agreed-upon narrative of testimony given in the earlier
In any event, we resort to the record not to contradict the trial court’s findings of fact, as distinguished from its conclusory “findings,” but to supplement the court’s factual findings and to assist us in determining whether they support the court’s ultimate legal conclusion that there was no conspiracy.
The December letters to all dealers said only that “[i]n effect, in some instances” the arrangements in question might violate the unauthorized location clause of the Dealer Selling Agreement. No dealer was told, either by letter or in person, that its conduct violated the franchise agreement, and no dealer was warned that continuance of discount house or referral sales would result in termination of its franchise. Zone manager O’Connor did not regard his instructions from Detroit as authorizing him to go that far, and he was of the view that “the general letter [to all dealers] didn’t suggest any such thing.”
We refer to this without considering whether General Motors could lawfully have taken such action.
James Roche testified, “It is not [General Motors’] practice to threaten dealers with termination of their franchise.” Good dealers and dealer locations, he said, are hard to come by. In many dealerships, General Motors itself has invested substantial fun<fs.;. Therefore, said Roche, “we would not want our people to go in and wave the franchise agreement, selling agreement, and threaten the dealer with termination in the event he didn’t agree, after following — after reading a letter he was violating our agreement and should change his practice. Instead we expected that this would be handled on a sound, calm, sensible business-like approach.”
There are also statutory inhibitions on the right of an automobile manufacturer to terminate dealer franchises. See Act of Aug. 8, 1956, c. 1038, §2, 70 Stat. 1125, 15 U. S. C. § 1222 (1964 ed.); Kessler & Stern, Competition, Contract, and Vertical Integration, 69 Yale L. J. 1, 103-114 (1959).
Compare Klein v. American Luggage Works, Inc., 323 F. 2d 787 (C. A. 3d Cir. 1963), and Graham v. Triangle Publications, Inc., 233 F. Supp. 825 (D. C. E. D. Pa. 1964), aff’d per curiam, 344 F. 2d 775 (C. A. 3d Cir. 1965), discussed in Fulda, Individual Refusals to Deal: When Does Single-Firm Conduct Become Vertical Restraint? 30 Law & Contemp. Prob. 590, 592-597 (1965).
The complaint in Klor’s charged a violation of § 2 of the Sherman Act, as well as of § 1. In the present case, the Government did not charge the appellees under § 2, which provides that “Every
Evidence on this subject was admitted solely for the purpose^ of showing the dealers’ state of mind, rather than to prove the existence of actual price-cutting by the discounters. But the collaborators’ state of mind is of significance here.
In an inter-office memorandum, circulated among General Motors officials immediately prior to formulation of corporate policy vis-á-vis the discounters, it was stated that “It would appear that one of the real hazards of condoning this type of operation is that discounted prices are freely quoted to a large portion of the public.” Moreover, we note that some discounters advertised that they would finance new-car purchases at an interest rate of 5%%, a rate substantially