1998-2 Trade Cases P 72,274
Joseph ROSSI; Rossi Florence, Corp.; Rossi Roofing, Inc., Appellants
v.
STANDARD ROOFING, INC.; Arzee Roofing Supply Corp.; Gaf
Corporation; Allied Roofing, Inc.; Servistar Corp.;
Robert Higginson; Hardware Wholesalers, Inc.; William
Higginson; Certainteed Corp.; Wolverine Corp.; Nailite
Corp.; Estate of Robert Higginson; Al Roth; Cary Roth;
Joseph Licciardello; Wood Fibre Industries, Inc.
No. 97-5185.
United States Court of Appeals,
Third Circuit.
Argued Nov. 6, 1997.
Filed Sept. 9, 1998.
Harold E. Kohn, Joanne Zack (Argued), Michael J. Boni, Kohn, Swift & Graf, Philadelphia, PA, Jonathan D. Clemente, Clemente, Dickson & Mueller, Morristown, NJ, for Joseph Rossi, Rossi Florence Corp., Rossi Roofing, Inc.
Robert C. Heim (Argued), Joseph A. Tate, Christine C. Levin, George G. Gordon, Dechert, Price & Rhoads, Philadelphia, PA, Sheldon M. Finkelstein, Shirley B. Whitenack, Hannoch Weisman, NJ, for GAF Corporation.
Stuart M. Kuritsky (Argued), Bursik, Kuritsky & Giasullo, West Orange, NJ, for Arzee Supply Corp., Alvin Roth and Cary Roth.
Steven M. Richman (Argued), Paul J. Ferdenzi, Gallagher, Briody & Butler, Princeton, NJ, for Wood Fiber Industries, Inc.
Stephen F. Ban (Argued), Springer, Bush & Perry, Pittsburgh, PA, David K. Delonge, Schumann, Hanlon, Doherty, McCrossin & Paolino, Jersey City, NJ, for Servistar Corporation.
Joel N. Kreizman (Argued), Evans, Osborne, Kreizman and Bonney, Little Silver, NJ, for Standard Roofing, Inc., William Higginson, the Estate of Robert Higginson and Joseph Licciardello.
Before: BECKER, ROTH, Circuit Judges and DIAMOND, District Judge.*
OPINION OF THE COURT
TABLE OF CONTENTS
PAGE
I. FACTS AND PROCEDURAL HISTORY ........................................ 457
A. The Parties ................................................... 457
B. Rossi at Standard; Rossi Forms His Own Company ................ 458
C. The Roofing and Siding Industry in Northern New Jersey; Price
Discounting and Market Shares ............................... 459
D. Rossi's Damage Claims ......................................... 460
E. Procedural History ............................................ 461
II. SECTION 1 OF THE SHERMAN ANTITRUST ACT .............................. 461
A. Characterizing a Group Boycott; Per se Versus the Rule of
Reason ...................................................... 461
B. Concerted Action .............................................. 465
1. Section 1 of the Sherman Antitrust Act--Proving the
Conspiracy .............................................. 465
2. Rossi's Evidence of Concerted Action ...................... 467
a. Standard (Robert Higginson, William Higginson, and
Joseph Licciardello) and Arzee (Al Roth and Cary
Roth) ............................................... 467
b. GAF ................................................... 472
(1) Matsushita Implausibility ....................... 472
(2) Circumstantial Evidence Against GAF ............. 475
(a) Distributors' Complaints and GAF's
Response ................................ 475
(b) Actions in Contravention of GAF Corporate
Policy .................................. 476
(c) Monitoring and Enforcement Activities ..... 476
(d) Pretextual Excuses ........................ 478
(e) Conclusion ................................ 478
c. Servistar ............................................. 479
d. Wood Fiber ............................................ 482
III. PROXIMATE CAUSE AND ANTITRUST INJURY ................................ 483
IV. STATE LAW TORTIOUS INTERFERENCE WITH CONTRACTUAL AND PROSPECTIVE
CONTRACTUAL RELATIONS ............................................. 487
V. CONCLUSION .......................................................... 488
EDWARD R. BECKER, Chief Judge.**
This appeal from the grant of summary judgment in favor of antitrust defendants presents a familiar pattern. A dealer irritates his competitors and their principal supplier through his aggressive price discounting practices. The other dealers complain to the supplier, who, to placate the aggrieved dealers, agrees not to sell any product to the dealer. The "boycotted" dealer then brings a Sherman Act suit, 15 U.S.C. § 1 et seq., in federal court. The alleged conspiracy involves a number of the plaintiff's competitors, and the refusal to deal is said to have become a group boycott, which can be a horizontal antitrust violation with per se antitrust implications; the supplier, notwithstanding its vertical relation to the plaintiff, is said to have become a co-conspirator.
The present case arose out of the rough and tumble roofing and siding materials distribution business in northern New Jersey, where several favored roofing and siding distributors were concerned that the entrance of a new price cutting competitor could destabilize the market and substantially cut into their profit margins. The principal players in this drama are plaintiffs Joseph Rossi, and his two successive roofing and siding distribution businesses, Rossi Florence Corp. ("Rossi Florence"), and Rossi Roofing, Inc. ("Rossi Roofing"); defendants Standard Roofing, Inc., ("Standard") and Arzee Supply Corporation ("Arzee"), two of Rossi's chief competitors, and several of their key officers; and defendant GAF Corporation ("GAF"), the manufacturer that supplied the most important product in the market. Minor roles were played by defendants Wood Fiber Industries, Inc. ("Wood Fiber"), another roofing and siding manufacturer, and Servistar Corp. ("Servistar"), a national purchasing cooperative and reseller of roofing and siding products.
Following discovery, the district court granted summary judgment for all defendants on the ground that plaintiffs had failed to adduce sufficient evidence to meet the demanding standard of proof in the antitrust context established by the Supreme Court's jurisprudence. The court also relied on plaintiffs' alleged failure to demonstrate causation and damages. While we agree with the district court that Rossi cannot survive summary judgment as to Servistar and Wood Fiber, we believe that the record is sufficient to enable Rossi to survive summary judgment on the antitrust claims as to Standard, Arzee, the individual defendants associated with those firms, and GAF.
The Supreme Court's jurisprudence in the area of concerted refusals to deal teaches that not every situation in which a distributor is cut off at the behest of his competitors constitutes a group boycott entitled to per se treatment. Otherwise, legitimate efforts by manufacturers to impose reasonable rules limiting intra-brand competition would be outlawed and the beneficial effects such actions have on inter-brand competition would be lost. Moreover, the distinction between vertical and horizontal restraints would blur. These concerns, however, are not implicated here, in view of both the price-related orientation of the alleged offending conduct of the key defendants and the sheer scope and draconian modus operandi of the alleged conspiracy.
The jurisprudence also renders it difficult for an antitrust plaintiff to prove that the manufacturer and distributors conspired, typically because it is difficult for the plaintiff to demonstrate that what the manufacturer or supplier did was inconsistent with independent action or that the claimed conspiracy makes economic sense. In this case, however, at least at the summary judgment stage, that burden is surmounted by the presence of certain direct evidence of conspiracy as well as: (1) evidence that GAF acted against its consistent policy (and hence ostensibly against its own interest) in refusing to sell (and seeing to it that others did not sell) GAF products to Rossi; (2) evidence of pretext in connection with GAF's efforts to explain away the foregoing; (3) evidence that the major suppliers had sufficient leverage over GAF to induce it to so act; and (4) the quite graphic and extensive nature of the statements and actions of various defendants directed towards eliminating Rossi as a price-cutting competitor who passed secret rebates onto his customers and thereby threatened to de-stabilize the market. We also discern genuine issues of material fact on causation and damages, and this too precludes summary judgment on the antitrust claims against the key defendants.
Although the district court's order granting summary judgment on the antitrust claims regarding GAF, Standard, Arzee, and their corporate officers must be reversed, it must be affirmed as to Servistar and Wood Fiber, since Rossi has failed to overcome his burden of showing that either Servistar's or Wood Fiber's actions tended to exclude the possibility of independent action on their part. More specifically, Rossi has failed to put forth any evidence of Servistar's motive to conspire; as we shall explain, Servistar's relationship to GAF was far different from that of the distributor defendants. Rossi has also failed to show that the other defendants had any leverage over Servistar with which they could have coerced it to join the conspiracy. With respect to Wood Fiber, the only evidence Rossi has been able to adduce is that Wood Fiber may, on one or two occasions, have responded to pressure and threats from Standard and Arzee by not selling to Rossi, and hence this record is insufficient to satisfy the standards for proving concerted action as delineated by the Supreme Court.
Rossi also pressed a tortious interference claim under New Jersey state law. The district court granted summary judgment for all defendants on this claim without any discussion. This aspect of the judgment must be set aside because it violates our rule requiring that district courts accompany grants of summary judgment with an explanation sufficient to permit the parties and this court to understand the legal basis for the court's order. See Vadino v. A. Valey Eng'rs,
I. FACTS AND PROCEDURAL HISTORY
The following background facts, which describe the basic framework and background within which this case arises, are set forth in the light most favorable to the non-moving party as is required when considering a motion for summary judgment. The remainder of Rossi's evidence, most of which deals specifically with the existence vel non of concerted action by the defendants, will be detailed in § II.B.2, infra, after we have explained the appropriate legal standards.
A. The Parties
The plaintiffs, in addition to Joseph Rossi, are Rossi Florence and Rossi Roofing.1 Rossi has been in the roofing and siding distribution business in northern New Jersey since 1972. Rossi Florence and Rossi Roofing were roofing and siding distribution companies formed by Rossi at the end of 1988 and the beginning of 1989. Both are now out of business. This suit was brought against a number of Rossi's competitors (as well as several individuals associated with them), several roofing and siding manufacturers, and one national purchasing cooperative. Several of the original defendants, Allied Roofing, Inc. ("Allied"), Nailite Corp. ("Nailite"), Certainteed Corp. ("Certainteed"), and Wolverine Technologies Corp. ("Wolverine") have settled with Rossi and were dismissed from the case. The remaining defendants are: Standard, Arzee, GAF, Wood Fiber, Servistar, the estate of Robert Higginson (hereinafter "Robert Higginson"), William Higginson, Joseph Licciardello, Alvin Roth, and Cary Roth.
Standard and Arzee are distributors of roofing and siding products in northern New Jersey. Like Rossi Roofing, they purchase products from manufacturers and resell them to contractors and applicators in large volume. Standard is headquartered in Tinton Falls, New Jersey and has seven branch locations, including five in New Jersey, one in Pennsylvania, and one in Connecticut. Robert Higginson was the founder and chairman of Standard. William Higginson, Robert's son, is a shareholder and the current president of Standard. Arzee is a family-owned distributor with one of its branches located adjacent to Standard in Cedar Knolls. Defendant Alvin Roth is a shareholder and the president of Arzee, and defendant Cary Roth is Alvin's son and one of Arzee's branch managers.
GAF and Wood Fiber manufacture and supply roofing products to distributors like Rossi Roofing, Standard, and Arzee. GAF and Wood Fiber are two of the 37 roofing product manufacturers that serve the northern New Jersey market. GAF manufactures and sells its roofing material ("GAF product") to most, but not all, of the distributors located in northern New Jersey. GAF sold to Standard, Arzee, and Allied, but refused to sell to Rossi. Joseph Licciardello was an employee of GAF, who quit his job and replaced Rossi as vice president of Standard after Rossi was fired.2 Wood Fiber competes with GAF in the northern New Jersey market, manufacturing and selling Structodek FS, a product used principally in commercial roofing applications.
Defendant Servistar is a member-owned, national purchasing cooperative that operates hardware distribution centers nationwide. Servistar has over 4000 members at the retail level and deals primarily in paint, hardware, plumbing and electrical supplies, housewares, lawn and garden equipment, power tools, and lumber. Roofing products account for only 2% of Servistar's total purchases on behalf of its members, which were just under $1 billion in 1990. Servistar does not warehouse roofing supplies, but rather operates on a "drop shipment" basis, meaning that members place their orders through Servistar (which affords them a discount based on Servistar's status as a national volume purchaser), and the selected roofing manufacturer then supplies the product directly to the member. Servistar pays the manufacturer and later collects from the member.
B. Rossi at Standard; Rossi Forms His Own Company
From 1972 to 1988, Rossi worked for defendant Standard as the manager of its Cedar Knolls, New Jersey branch, selling roofing and siding materials. In 1980, Rossi was promoted to vice president, rewarded with stock in the company, and told that he would eventually become a co-owner of the business. Eight years later, however, in September 1988, Standard fired Rossi. The parties dispute the reasons for Rossi's discharge. Rossi alleges that Standard fired him because he refused to participate in a conspiracy with defendant Arzee to fix prices, discussed infra at § II.B.2.a. Standard claims that it fired Rossi for a combination of reasons including his deteriorating work performance, his failure to control expenses, the Cedar Knolls branch's excessively high payroll expenses under his management, his large personal expense account, his failure to arrive at work until late morning, his concentration on outside business ventures to the detriment of Standard, and, ultimately, his failure to achieve branch profits commensurate with branch sales.
At all events, by the time he was fired, Rossi had developed a reputation within the industry for extremely competitive pricing, excellent service, and reliability. While at Standard, Rossi had refined an aggressive marketing strategy that stressed high volume sales at low prices. This strategy, as one might imagine, angered Rossi's competitors and even concerned some of his suppliers, which were sensitive to their distributors concerns about pricing.
After his termination, Rossi decided to use his connections within the industry to open his own roofing and siding distributorship that would serve northern New Jersey in direct competition with Standard and Arzee. Rossi's first attempt, in late 1988, was Rossi Florence, a joint venture with Richard Droesch ("Droesch"), president of Florence Corp. ("Florence"), a roofing, siding, and window distributor in Long Island, New York. Rossi and Droesch planned to operate their new business out of a warehouse Rossi owned at 8 Frederick Place, located immediately adjacent to Standard's Cedar Knolls/Morristown branch and just down the street from Arzee's Morristown branch. Rossi and Droesch made substantial preparations for their venture during the fall of 1988. Droesch (together with one of his employees) invested $100,000 in Rossi Florence, and Rossi Florence obtained a $900,000 bank line of credit secured by the principals' personal guarantees. By mid-January 1989, however, Droesch decided to pull out of Rossi Florence, and Rossi refunded his investment. Droesch felt that because of pressure from Standard, Arzee, and others, the new company would be unable to get the products it needed to successfully compete in the market. In addition, Alvin Roth, president of Arzee, threatened Droesch that if he continued in business with Rossi in New Jersey, Arzee would open up a branch in Long Island to compete directly with Droesch's Florence distributorship.
Thereafter, in February 1989, Rossi incorporated Rossi Roofing, continuing his efforts to break into the roofing and siding distribution business in northern New Jersey. Rossi Roofing obtained another $900,000 bank line of credit, personally guaranteed by Rossi and his wife. The company, which opened for business on March 20, 1989, closed in less than a year, after experiencing great difficulty in obtaining product lines and weathering the brunt of a major downturn in the New Jersey housing industry. In January 1990, unable to run Rossi Roofing profitably, Rossi sold the company's assets to American Builders and Contractors, Inc. ("ABC"), a national roofing and siding distributor.
C. The Roofing and Siding Industry in Northern New Jersey; Price Discounting and Market Shares
During the relevant time period, the northern New Jersey market included thirty-nine roofing distributors with more than fifty-seven locations. Eleven residential roofing manufacturers, nine commercial roofing manufacturers, and seventeen vinyl siding manufacturers operated in the region. It is undisputed that this roofing and siding marketplace was highly competitive, and that roofing and siding contractors constantly price-shopped, pitting distributor against distributor in order to obtain the best possible deal.
GAF, which served this region, offered certain favored distributors secret off-invoice, volume and non-volume discounts or "rebates" in the form of periodic credits against purchases. Standard, Arzee, and former defendant Allied purportedly all received such discounts from GAF. The amount of these discounts was kept highly confidential because the favored distributors feared that if other distributors found out, they might complain to GAF and ultimately destabilize prices in the market. As GAF district sales manager Elmer "Bud" Krusa put it, "the less people that know about it, the less chance you have of getting it--dropping the entire market price." Rossi contends that while he was employed at Standard, he would pass these discounts on to his customers in an effort to increase his market share, whereas his competitors typically pocketed the rebate.
GAF and Wood Fiber are the only two manufacturers remaining as litigants in this case. According to GAF's own estimates, it supplied a large percentage of the New Jersey shingle market (38% for all shingles and 71% for laminate shingles). GAF was Standard's primary supplier of roofing products in the 1980's, and Standard was GAF's biggest customer in New Jersey and one of its top five customers in the entire country. Standard bought $7.7 million of GAF product in 1989 (or 32% of GAF's total sales in New Jersey that year), substantially more than any other GAF customer in New Jersey.
Arzee and former defendant Allied also purchased GAF product, but in markedly smaller quantities. Arzee, for example, featured Tamko and Owens Corning Roofing, rather than GAF product, and only purchased $919,747 of GAF product in 1989 (or 4% of GAF's total sales in New Jersey in 1989). Together, however, Standard, Arzee, and Allied (which bought $2.1 million of GAF product in 1989) purchased $10.7 million of the $24.1 million of GAF product sold in New Jersey (or 44% of GAF's total sales in New Jersey in 1989).3 Rossi contends that, notwithstanding the large number of other manufacturers offering product in the area, GAF product was critical for a distributor to successfully compete in Northern New Jersey, as evidenced by GAF's large market share and also the fact that it was the most desirable and popular roofing material available. This in turn stems in part from several facts: GAF product was well-known by both homeowners and contractors; GAF guaranteed its product; and importantly, GAF product had already been selected for many of the existing townhouse projects in northern New Jersey in 1989 and 1990, making it impossible for the builders to switch brands mid-stream.
The evidence in the record regarding Wood Fiber's market position in 1989-90 is not as clearly defined as that of GAF. Wood Fiber manufactures Structodek FS, a commercial roofing product used primarily in commercial applications for certain modified bitumen roofs. Commercial work comprised no more than a third of Rossi Roofing's business; the remaining two-thirds consisted of residential roofing. We do not know from the record how much product Wood Fiber sold in the northern New Jersey market; nor do we know what percentage of Wood Fiber's sales was purchased by Standard or Arzee (or Allied); nor is there any evidence that Wood Fiber had an off-invoice rebate program favoring certain distributors similar to GAF's. This is not surprising because Wood Fiber's involvement in this case stems largely from two isolated episodes, one in which a Wood Fiber representative complained of "pressure" not to sell to Rossi Roofing, and another in which Wood Fiber refused to supply product to Rossi after having accepted an order. See infra § II.B.2.d.
D. Rossi's Damage Claims
Rossi submits that because of his inability to purchase "GAF and other essential products, Rossi Roofing could not succeed." Unable to sustain the business any longer, on January 8, 1990, Rossi entered into an asset purchase agreement with ABC, which leased Rossi's 8 East Frederick Place property and opened a branch where Rossi Roofing once stood. Most employees, including Rossi as the branch manager, continued to work for ABC. According to Rossi, ABC (which was able to get GAF and other products) did very well. In 1990, it achieved over $5.5 million in sales, and by 1993, sales had increased to $11 million.4 In 1993, ABC fired Rossi, closed the Morristown branch, and transferred operations to Randolph, New Jersey. Rossi then entered into a similar agreement with Allied, which opened up a location on Rossi's property and hired him to manage it.
Rossi contends that he suffered substantial damages when Rossi Florence and Rossi Roofing, unable to get GAF and other important products, failed. In support, Rossi offers the testimony of several of his former customers during his tenure at Standard, who stated that they would have done business with Rossi Roofing if it had had the necessary product lines. Thus, in Rossi's submission, if the manufacturers had sold to him the same products that they ultimately sold to ABC (and later Allied), Rossi Roofing would have succeeded, and "over time, Rossi would have had his company open up new branches, as Standard, Arzee and Allied have done. The lost profits to Rossi Florence, and to Rossi Roofing, have been over $7 million at a minimum." In addition, Rossi claims to have suffered additional, non-duplicative damages of over $1 million from payments he made on behalf of Rossi Florence and Rossi Roofing, including payments made on his personal guarantees of Rossi Roofing's debts.
E. Procedural History
Rossi's action in the district court alleged, inter alia, a group boycott in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 3 of the New Jersey Antitrust Act, as well as tortious interference with plaintiffs' contractual and prospective contractual relations.5 After extensive discovery and submissions in support of and opposition to the motions, the district court granted defendants' motions for summary judgment, finding insufficient evidence of concerted action, causation, and damages. Rossi has appealed not only that judgment but also a discovery ruling--the district court's order denying a motion to compel defendant GAF to provide additional factual detail about the subject matter of GAF's counsel's handwritten notes of three telephone conversations with GAF employees.
The district court had subject matter jurisdiction pursuant to 28 U.S.C. §§ 1337 and 1367, as well as 15 U.S.C. § 15. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291.
II. SECTION 1
OF THE SHERMAN ANTITRUST ACT
Under the literal dictates of § 1 of the Sherman Act "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ... is declared to be illegal." 15 U.S.C. 1 (emphasis supplied). The Supreme Court has interpreted this provision to prohibit only unreasonable restraints. See Business Elecs. Corp. v. Sharp Elecs. Corp.,
A. Characterizing a Group Boycott; Per se Versus the Rule of Reason
Rossi, relying on such cases as United States v. General Motors Corp.,
Defendants respond that Rossi's theory does not comprise a per se antitrust claim because it is a vertical conspiracy in which there has been no allegation of resale price fixing. We agree with defendants that if this were simply a vertical conspiracy, between one horizontal competitor and one supplier or manufacturer, we would analyze it under the rule of reason unless there were some evidence of price fixing. See Business Elecs.,
In General Motors, the Supreme Court found a group boycott where a group of automobile dealers had joined together to force their manufacturer, General Motors, to assist them in ending the practice of some dealers that were reselling their automobiles to discounters. See id. at 143-44, 147,
The common principle we glean from these cases is that a conspiracy is horizontal in nature when a number of competitor firms agree with each other and at least one of their common suppliers or manufacturers to eliminate their price-cutting competition by cutting his access to supplies. From this perspective, Rossi's asserted conspiracy is indistinguishable from those put forth in General Motors, Klor's, Big Apple BMW and Sweeney--namely, "joint action to eliminate [a] discounter[ ] from participation in the market," General Motors,
This conclusion, however, leaves us with the second (and ultimately more difficult) question whether this horizontal agreement, which Rossi labels a "group boycott," qualifies as a per se violation. Traditionally, such agreements have received such per se treatment. See Malley-Duff & Assocs. v. Crown Life Insur. Co.,
In Northwest Wholesale Stationers, the Supreme Court attempted to explain what kinds of boycotts qualify for the per se approach and what kinds do not. The Court emphasized that the per se approach was appropriate when the allegations were of "joint efforts by a firm or firms to disadvantage competitors by either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle."
Applying these precepts to the "boycott" at issue in Northwest Wholesale Stationers, the Court determined that it was "not a form of concerted activity characteristically likely to result in predominantly anticompetitive effects." Id. at 295,
Similarly, in Indiana Fed'n of Dentists, the Court refused to extend per se group boycott status to a situation in which a professional association collectively refused to cooperate with insurers' requests for x-rays. The Court refused to expand the category of cases classified as per se group boycotts to situations involving professional associations or situations where "the economic impact of certain practices is not immediately obvious."
Here, in contrast to Indiana Fed'n of Dentists and Northwest Wholesale Stationers, the defendants are not members of a professional association, and the economic impact of their actions--driving a price-cutting competitor out of business--is clear. Applying the precepts laid out in Northwest Wholesale Stationers, we believe that the Rossi boycott falls within the description of "joint efforts by a firm or firms to disadvantage competitors by either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle."
For these reasons, we find it implausible that the alleged behavior by the defendants would "enhance overall efficiency and make markets more competitive," Northwest Wholesale Stationers,
Our conclusion that Rossi's allegations constitute a per se violation of § 1 simplifies our analysis here. In the usual rule of reason case, to establish a violation of § 1, plaintiffs must prove:
(1) that the defendants contracted, combined or conspired among each other; (2) that the combination or conspiracy produced adverse, anti-competitive effects within the relevant product and geographic markets; (3) that the objects of and the conduct pursuant to that contract or conspiracy were illegal; and (4) that the plaintiffs were injured as a proximate result of that conspiracy.
Tunis Bros. Co., Inc. v. Ford Motor Co.,
B. Concerted Action
1. Section 1 of the Sherman Antitrust Act--Proving the Conspiracy
The presence of concerted action or an agreement is an essential element of a § 1 claim. See Copperweld Corp. v. Independence Tube Corp.,
While the traditional summary judgment standard applies with equal force in antitrust cases,9 when the plaintiff relies solely on circumstantial evidence to prove concerted action, this analysis is modified in accordance with the leading antitrust cases dealing with this subject, Monsanto and Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
The Supreme Court's concerns about permitting the inference of a conspiracy from ambiguous circumstantial evidence in the antitrust context stem from its conclusion that mistakes by an overzealous judiciary would be "especially costly ... chill[ing] the very conduct the antitrust laws are designed to protect." Matsushita,
Under our jurisprudence, the Matsushita standard only applies when the plaintiff has failed to put forth direct evidence of conspiracy. See Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., Inc.,
Additionally, our 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. See Petruzzi's,
In sum, Matsushita does not introduce a special burden on antitrust plaintiffs opposing summary judgment; it "demands only that the nonmoving party's inferences be reasonable in order to reach the jury, a requirement that was not invented, but merely articulated, in that decision. If the plaintiffs theory is economically senseless, no reasonable jury could find in its favor, and summary judgment should be granted." Eastman Kodak,
Finally, while ambiguous conduct cannot create a triable issue of fact, when "the alleged conduct is 'facially anticompetitive and exactly the harm the antitrust laws aim to prevent,' no special care need be taken in assigning inferences to circumstantial evidence." Alvord-Polk,
With these standards in mind, we will address the evidence adduced by Rossi in support of his theory of conspiracy. Cognizant of our obligation to view the evidence as a whole and to resist the temptation to compartmentalize it, see Petruzzi's,
2. Rossi's Evidence of Concerted Action
a. Standard (Robert Higginson, William Higginson, Joseph Licciardello) and Arzee (Al Roth and Cary Roth)
We begin with Rossi's horizontal competitors, Standard and Arzee, against whom Rossi has the strongest evidence of motive to keep a price-cutting competitor with close ties to many customers from entering the market. Standard's and Arzee's (as well as the other defendants') first line of defense to Rossi's charges is that the conspiracy he alleges is implausible, and therefore under Matsushita, permitting an inference of antitrust conspiracy would have the effect of "chill[ing] the very conduct the antitrust laws are designed to protect."
They base their implausibility claim on the fact that the market was extremely price competitive and consisted of upwards of three dozen competing distributors. Under these conditions, defendants argue that they could not have charged above-market prices and stayed in business, and thus that they had nothing to fear from a price-cutter like Rossi. Moreover, they submit that there would be little to gain by excluding one more distributor from the market when there were at least three dozen firms in the market already. In defendants' view, any conspiracy to stabilize the market and reap enhanced profits would be doomed to failure (and is therefore presumably implausible) because, to succeed, it would have required an enormously complex and far-reaching undertaking, involving upwards of sixty participants (each selling different quantities of comparable, competing products) to stabilize prices at supra-competitive levels. Defendants maintain that, because there was virtually no likelihood that three (Standard, Arzee, and Allied) out of the almost forty competing distributors, and one or two (GAF and possibly Wood Fiber) out of thirty manufacturers could have sustained such a conspiracy, they had no rational motive to conspire, and the conspiracy is thus implausible.
The defendants compare this to the situation in Matsushita. There, the defendants were alleged to have entered into a twenty-plus-year conspiracy to fix prices in the electronics market below the market level in the hopes of establishing a monopoly and extracting monopoly profits in the undetermined future. See Matsushita,
Standard's and Arzee's reliance on Matsushita in this case is misplaced for several reasons. As a threshold matter, Matsushita does not apply when there is direct evidence of conspiracy. See Petruzzi's,
Q: Mr. Rossi, tell me specifically what anyone from Standard did to prevent Rossi Florence from going into business.
* * *
A: I guess it started when Joe Licciardello came over and threatened me that if I went into business that he and Arzee Supply would do anything they could, stop supplies, cut the prices, whatever they had to do they were going to do to keep me out of business. That's the way he put it.11
Licciardello's threat, viewed in a light most favorable to Rossi, indicates that two of his competitors had discussed and agreed to act jointly to prevent Rossi from competing with them in the roofing and siding business in northern New Jersey. Moreover, Licciardello's statement even details how the two companies planned to do it; they agreed to "stop supplies" anyway they could. Thus, we conclude that the Matsushita implausible conspiracy argument is not relevant to the allegations of conspiracy with respect to Standard and Arzee. However, even if, as in the case of GAF, there was no direct evidence of concerted action, the conspiracy Rossi alleges is not implausible. Indeed, as we will discuss below, with respect to Standard, Arzee, and GAF, the conspiracy makes perfect sense. See infra § II.B.2.b(1).
The direct evidence discussed above is enough to take the case against Standard and Arzee beyond the constraints of Matsushita (and thus permits us to avoid the questions whether the circumstantial evidence tends to exclude the possibility of independent action, whether the plaintiff's claim is plausible, and whether the defendants' economic motives were rational). See supra at § II.B.1. However, it is not enough by itself to satisfy Rossi's burden in opposing summary judgment. On the other hand, Rossi has adduced a significant collection of other evidence, circumstantial in nature, in support of his position. We turn to that evidence now.
First, Rossi has adduced evidence of two meetings between Standard and Arzee employees which, when taken together, support the inference of a joint motive by the two defendants to unlawfully stabilize roofing prices in northern New Jersey. This motive is consistent with the motive behind the defendants' alleged boycott of Rossi Florence and Rossi Roofing--that Standard and Arzee wanted to eliminate an uncooperative competitor who threatened to undercut their prices and destabilize the market. Rossi testified that sometime in 1986 or 1987, while he was still working for Standard (he was fired in September 1989), his boss at that time and chairman of Standard, Robert Higginson, directed him to attend a lunch with Al and Cary Roth of Arzee. According to Rossi, Robert Higginson told him that this lunch had been set up so that the two competitors could "cooperate" and share price information. Robert Higginson also told Rossi that Standard's other competitors had pricing agreements and that they were the only ones who were not participating. At the lunch, Al Roth proposed to Rossi a price-fixing scheme whereby Arzee and Standard would fix prices and divide up their large customers and jobs. Al Roth further explained to Rossi that he had maintained a similar arrangement with Allied concerning Certainteed products. Rossi rejected Al Roth's overtures, and Standard and Arzee did not, at that time, enter into an agreement to set prices.
The second Standard-Arzee meeting at which prices were discussed took place over the telephone in February of 1990. It involved a conversation between Licciardello, the manager at that time of Standard's Cedar Knolls branch, and Cary Roth, the manager of one of Arzee's local branches, regarding the price of GAF vinyl siding. Patrick Mulcahy, a former employee of Standard who overheard the conversation, recalled that Licciardello said to Cary Roth: "We really got to run this like a business and we all have to make a profit here. And we've got to keep certain price levels in order to do this."12 This statement is remarkably similar to other statements that we have found probative of an agreement between competitors. See, e.g., Petruzzi's,
Neither of these discussions took place during the period of the alleged conspiracy to boycott and exclude Rossi from the market; one took place before, and one after. Yet we reject Standard's and Arzee's contention that they are irrelevant to our decision. The two pieces of evidence, especially taken together, are probative of Standard's and Arzee's motive. Evidence that Standard's and Arzee's principals had actively considered fixing prices and allocating customers in 1986-87, and again in 1990, is sufficient to permit the inference that Standard and Arzee may have had a long-standing intent to stabilize prices in the roofing distribution business in northern New Jersey. See Big Apple BMW,
The record is also replete with examples of high pressure recruitment, monitoring, and enforcement tactics undertaken by Standard and Arzee in furtherance of their efforts to prevent Rossi from purchasing roofing materials, particularly GAF product. There is evidence that Standard and Arzee put pressure on virtually everyone, including manufacturers, distributors, and even Rossi's prospective business partner, Droesch, to convince them not to do business with Rossi. In December 1988, for example, Al Roth called Droesch, who had agreed to establish Rossi Florence and go into business with Rossi, and told him that he was not happy about Rossi competing against Arzee and that if Droesch proceeded with his plans to establish Rossi Florence with Rossi, Roth would open up an Arzee location on Long Island near Droesch's Florence business which was located there. Also in late 1988 and early 1989, representatives of several manufacturers told Rossi that they were being pressured not to deal with him or sell to Rossi Florence. Specifically, Rossi testified that representatives from Gold Bond, Wood Fiber, Bird Corporation, Homosote, Hi-Finn, Genstar, Vipco, and Hastings Aluminum, told him that they had been threatened by representatives of Standard. Similarly, representatives of Nailite and Certainteed claimed that they had been threatened by Arzee.13
There was evidence that after Rossi incorporated Rossi Roofing in early 1989, Standard's and Arzee's pressure on manufacturers and distributors continued. Joe Mullenhour of Bird Corporation told Rossi that Licciardello of Standard had threatened to drop Bird's vinyl siding if Bird Corporation sold to Rossi Roofing. Bill Higginson of Standard also spoke to Raymond Six of Gold Bond and told him that he was "disappointed" that Gold Bond had agreed to sell to Rossi Roofing. Six cut off the conversation because he was concerned by the antitrust implications of Bill Higginson's overtures. More specifically, Six told Higginson that he would not let the conversation go further because:
Gold Bond had been in an anti-trust suit back in the 70's on gypsum. Every Gold Bond manager--well, I'll say every Gold Bond employee had been schooled, I'll say, from 1975 on, anyway, on what Robinson-Patman is, what Sherman anti-trust was. So the conversation wasn't going to go any further than what my statement to him was.
When Rossi asked Jim Hines of Hi-Finn to supply Rossi Roofing with the "Atlas" insulation line, he arranged for Rossi to buy the product indirectly through a middleman at a higher price. When Hines later visited Standard on a sales call, Licciardello told him, "You know why I can't do business with you." Hines replied that "if it has anything to do with the truck of Atlas insulation that Joe Rossi has in stock, that was purchased through another distributor, not directly through Atlas." Licciardello referred Hines to Bob Schaab, Standard's Controller, who told Hines to "[d]o what you want to." Based upon his experience with Schaab and his dealings with Standard, Hines testified that he concluded that conversation with "the feeling that his implication may have been that, if I sold to Joe [Rossi], he definitely wouldn't buy from me." Finally, Hines testified that his business with Standard fell off right around the time that Rossi purchased the Atlas insulation from the middleman recommended by Hines. On this evidence, a fact finder could reasonably draw the inference that Licciardello had threatened Hines to ensure Hi-Finn's cooperation in the boycott of Rossi, and that, when Hines rebuffed him, Standard punished Hines and Atlas by cutting off future purchases.
Similarly, Rick Fiore, an employee of roofing manufacturer Certainteed, told Rossi that Cary Roth of Arzee had pressured him and threatened to sue Certainteed if it sold to Rossi Roofing. Robert Qualik of Nailite informed Rossi that Arzee had told Nailite not to sell to Rossi Roofing and that "[Arzee] had blocked [Rossi Roofing] from getting product on a particular job right around the corner from us." Also, Karl Loser of Wood Fiber told Rossi that he was receiving a lot of pressure from Standard not to sell Structodek FS, a Wood Fiber product, to Rossi Roofing.
In an effort to circumvent these supply problems arising from his efforts to buy directly from manufacturers, Rossi attempted to purchase product through other distributors, even though this would cost more. For example, Rossi was able to convince Passaic Metals, a roofing and siding distributor in northern New Jersey, to sell him some GAF product. In response, Bill Higginson of Standard called his competitor, Frank Gurtman, the president of Passaic Metals, and threatened to open a branch near Passaic Metals and take away all of his customers if Gurtman continued to sell to Rossi.
There is also evidence that Standard and Arzee went to great lengths to monitor Rossi Roofing. The record indicates that Licciardello ordered Keith Cogley and Jorge Esteves to report to him the comings and goings of all roofing materials at Rossi Roofing. All three closely watched Rossi's premises on a daily basis to determine what kinds of products Rossi was able to purchase and from where they might be coming. Cary Roth and Ed Jacobitz of Arzee also frequently monitored Rossi Roofing by sitting in their cars in a cul-de-sac adjacent to Rossi's premises.
In addition, there is evidence that Standard even reported back to GAF when its employees saw GAF product on Rossi's premises to assist GAF in enforcing the boycott. Former GAF district manager Licciardello, then working for Standard, admitted that after seeing GAF product on Rossi's premises, he called Bob Gessner of GAF to confirm that GAF was still not selling to Rossi. On another occasion, when a load of GAF was sitting out in front of Rossi Roofing, Gessner said to Licciardello, "I thought we weren't selling him," to which Licciardello responded "we're not."
When Standard's Cogley saw a load of GAF product at Rossi Roofing, Licciardello called GAF to find out how Rossi had procured the product. Someone at GAF told Licciardello that the load was not for Rossi Roofing, but that it was being transported on a Jentar truck, and was simply stopping overnight at 8 East Frederick Place, where both Jentar Trucking and Rossi Roofing had offices. Later, after Licciardello learned that Rossi Roofing had purchased GAF product from Servistar through his Far Hills account, see infra § II.B.2.c, Licciardello told Standard employee Esteves that " 'That's the last time we're going to be seeing any GAF across the street.' They got the--they were getting the loads through [Far Hills], which is [Servistar]. That's how Joe Rossi was getting GAF and he's [Licciardello's] going to put an end to that. 'Never going to see another GAF load across the street.' "
While this monitoring and reporting activity would not in isolation be probative of a conspiracy, in the context of the pressure and enforcement tactics described above, the direct evidence that Standard and Arzee had talked about and agreed to boycott Rossi Florence and Rossi Roofing, and the circumstantial evidence of motive, certain inferences can be drawn from this evidence. To enforce a boycott, Standard and Arzee would need to monitor carefully the supplies Rossi was able to procure, communicate to cooperating manufacturers any evidence that Rossi had been able to circumvent the boycott, and bring pressure on any non-cooperating manufacturers or distributors that refused to participate in the conspiracy. Here, Rossi has adduced evidence of exclusive monitoring by both Standard and Arzee, and evidence that Licciardello could "put an end" to Rossi receiving GAF product. Viewed in conjunction with the evidence that Standard and Arzee pressured many manufacturers and distributors, this monitoring and reporting activity also supports an inference that Rossi's two primary competitors were jointly attempting to establish a market-wide boycott of Rossi Roofing.
We emphasize that we would not consider the evidence that Standard and Arzee aggressively monitored Rossi Roofing (and even reported the substance of those observations to GAF), without more, sufficient to satisfy Rossi's burden in opposing summary judgment. However, in conjunction with all of the other pieces of circumstantial evidence Rossi has adduced, we believe that this monitoring and reporting activity represents an important thread to be considered in the complicated tapestry of conspiracy that Rossi weaves.
Looking at all of the evidence Rossi has assembled against Standard and Arzee, we conclude that he has satisfied his burden in opposing summary judgment on the concerted action prong. First, Rossi has developed direct evidence that Standard and Arzee had, both before and after Rossi Roofing existed, attempted to conspire to fix prices, allocate customers, and otherwise stabilize the roofing and siding distribution market in northern New Jersey. He has also shown that both defendants knew him to be a price-cutting competitor who had frustrated their unlawful purposes by refusing to cooperate with them. These two facts provide strong evidence of the defendants' motive to conspire against Rossi. Desiring to raise prices above their competitive levels in a highly competitive market, an inference is supported that Standard and Arzee were concerned that they could not succeed without Rossi's cooperation, and that they therefore decided to prevent him from competing against them.
Next, Rossi points us to direct evidence of the boycott, namely Licciardello's threat on behalf of Standard and Arzee to cut off his supplies and put him out of business. Finally, Rossi has developed considerable evidence of Standard's and Arzee's elaborate efforts to enforce the boycott. Rossi has produced testimony that many manufacturers and distributors were pressured and/or threatened not to do business with Rossi Florence and Rossi Roofing. He has also adduced testimony that Standard and Arzee had an elaborate monitoring system in place, one which even included reporting back to GAF to help enforce the boycott.
To be sure, this evidence is far from conclusive. It could be found at trial that Standard, Arzee, and GAF were all acting independently of one another in parallel efforts to do Rossi in. However, given the comprehensive nature of the evidence covering all elements of the group boycott Rossi alleges, we must reverse the district court's order granting summary judgment in favor of Standard, Arzee, Robert Higginson, William Higginson, the Roths, and Licciardello.
b. GAF
We also believe that Rossi has adduced sufficient evidence that GAF acted in concert with Standard and Arzee to survive its motion for summary judgment and will reverse the district court with respect to GAF as well.
(1) Matsushita Implausibility
GAF's first defense, like Standard's and Arzee's, is that the conspiracy alleged by Rossi is implausible under Matsushita. Because Licciardello's statement that Standard and Arzee intended to establish a boycott of Rossi Roofing is insufficient by itself to hold in GAF, and we can find no (other) direct evidence of GAF's participation in the alleged conspiracy in the record, we must analyze, under the Matsushita standard, the plausibility of the conspiracy that Rossi alleges. See supra § II.B.2.a. In contrast with that case, we find that the theory Rossi advances with respect to GAF's motivations and participation in the conspiracy is not economically implausible.
First, Rossi's claim does not, as defendants allege, require the cooperation of dozens of distributors and manufacturers (each selling different quantities of comparable competing products) in the northern New Jersey marketplace to succeed (i.e. for distributors Standard, Arzee, and Allied to be able to charge supra-competitive prices). Rather, it is primarily focused on the actions of three distributors, Standard, Arzee, and Allied, and one manufacturer, GAF. Despite the fact that this case arises against the backdrop of the highly competitive, price-sensitive roofing and siding industry in northern New Jersey in 1989 and 1990, Rossi advances a plausible theory of how these defendants could have unlawfully conspired to fix prices and therefore why they would want to boycott Rossi. Moreover, even if Standard and Arzee were not conspiring to keep prices artificially inflated by pocketing the secret rebates that their competitors were not receiving, both still had a plausible motive to keep Rossi, an avowed and experienced price-cutter and acknowledged potent competitor with a reputation among their customers for excellent service, from opening up a competing distributorship next door.
In order to comprehend the plausibility of the conspiracy Rossi alleges, it is necessary to understand GAF's position in the market and the importance of GAF product. In 1990, GAF was indisputably one of the largest and most important manufacturers of roofing supplies in the northern New Jersey market, with an estimated 38% share of the entire residential roofing shingle market in New Jersey and an estimated 71% share of the residential roofing laminate shingle market in New Jersey. GAF not only supplied a large percentage of the overall market, but it also was Standard's single largest supplier during the time that Rossi was a manager there. As such, Rossi was extremely familiar with GAF, and a large percentage of his customers, many of whom followed him from Standard to Rossi Roofing, had a strong preference for GAF product. Indeed, there is substantial testimony in the record from many sources supporting Rossi's contention that GAF product was critical to both Rossi Florence's and Rossi Roofing's success in the market.
For example, Sean Coffey, one of the five largest residential roofers in northern New Jersey, testified that he used GAF product in 1989 and 1990 almost exclusively and would not buy from any roofing distributor that did not have access to it. Similarly, Francis Doherty, proprietor of another large roofing business in northern New Jersey, testified that "99 percent" of his strip shingle purchases had been GAF product. John Feher, another roofer who attempted to purchase GAF product from Rossi Roofing, testified that GAF was very popular with everyone, including contractors and homeowners, because "it's easy to get and guarantees [sic] and everything is good on it." Thomas Harnett, an executive at Bird Corporation, testified that GAF "dominated all levels of roofing in New Jersey," and that it was a "highly desirable product."
Likewise, Albert Logan, a former Celotex employee, stated that GAF had "dominate[d] the market for years," representing at least fifty percent of every distributor's inventory. John Mulcahy, a former Standard employee, also testified that GAF was "dominant and had ... [its] product[s] so well-established in the area." Because of this, Mulcahy stated that any distributor denied access to GAF product would have difficulty competing in the residential shingle market. Id. When asked to describe the magnitude of the adverse impact of trying to compete without GAF product, Mulcahy stated, "It would be like a beer distributor not having Budweiser."
Finally, another former employee at Standard, Michael Hydro, testified that GAF comprised eighty percent of his sales while he worked there and at least five of Standard's customers purchased exclusively GAF product. He also explained that in 1989 and 1990, a large number of townhouse projects were already "spec'd" with GAF product, which made it impossible for the roofers to switch product lines mid-stream. Thus, anyone who could not supply GAF product was effectively barred from bidding for these jobs. On the basis of all of this evidence, we believe that Rossi has demonstrated that a genuine issue of material fact exists as to whether GAF product was special, and necessary for a distributor like Rossi to successfully compete in northern New Jersey.
Against this background on the roofing market in general and GAF's place in the market in particular, we move to the evidence Rossi adduced that GAF used secret rebates with several of its biggest distributors in northern New Jersey, including Standard, Arzee, and Allied, for that is critical to understanding the motivations of Rossi's horizontal competitors. Pursuant to this scheme, GAF provided these distributors off-invoice, non-volume discounts on their purchases. These "rebates," assuming they were only offered to a few favored distributors as Rossi contends, allowed those distributors to sell GAF product at or below the prevailing market price (as set by the distributors who did not receive the discounts) while secretly conspiring to pocket the difference. In GAF district sales manager Bud Krusa's words, "the less [sic] people [who] knew about it [the discounts], the less chance you [the smaller distributors] have of getting it[and] dropping the entire market price." The most favorable inference we can draw for Rossi from Krusa's statement is that if these highly secret rebates became widely known, the smaller distributors who were not receiving rebates would have put pressure on GAF to receive equal treatment, and that this shakeup of the market could ultimately destabilize prices, lead to a price war, and "drop[ ] the entire market price" for GAF product.
By adducing evidence of the GAF rebate scheme and the importance of GAF and GAF product, Rossi transforms what might otherwise have been a very difficult (and implausible) conspiracy into a realistic opportunity for a few cooperating competitors to fix prices and earn substantial profits while still operating within what appears to be a competitive marketplace. Cf. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,
We find this case, as it relates to GAF, Standard, and Arzee, fundamentally unlike Matsushita. There, the critical problem with the conspiracy as alleged was that the conspirators had been losing large sums of money over a period of twenty plus years by undercutting the market in the hope of building market share and eventually establishing a monopoly. Not only did the Court find it difficult to distinguish the allegedly predatory pricing strategy from actual price competition, but given the extremely low chance that the scheme would succeed, the Court concluded that the defendants, if they operated in a rational manner, had no motive to engage in the conduct with which they were charged. In contrast, it is not difficult to divine the likely motive of the three distributors, Standard, Arzee, and Allied, in boycotting Rossi. As Rossi's horizontal competitors, they wanted to rid the market of a price-cutting competitor with a reputation for excellent service and reliability who had refused to cooperate in their price-fixing schemes in the past. Moreover, Rossi is aided in asking us to permit the fact finder to draw this inference by the strong likelihood that the boycott would actually succeed (as evidenced by the results).
Even if all of this is true, submits GAF, it still does not explain why it would make sense for GAF to join the conspiracy. We agree that GAF's motive, as the manufacturer-supplier, is less obvious than Standard's or Arzee's, but ultimately we find it no less compelling. This is because Rossi has adduced evidence that Standard, Arzee, and Allied possessed substantial economic leverage over GAF. Together, they purchased $10.7 million of the $24.1 million of GAF product sold in New Jersey in 1989, or 44.5% of GAF's total northern New Jersey sales. These distributors were not happy about the prospects of Rossi entering the market and competing with them, and they made their views known to GAF. Complaints and threats from three of GAF's largest customers in New Jersey are sufficient to establish a rational motive for GAF to engage in the concerted conduct that Rossi alleges. For these reasons, we do not accept GAF's submission that Rossi's conspiracy theory, and the economic motivations behind it, are inherently implausible.
(2) Circumstantial Evidence Against GAF
We turn next to the circumstantial evidence that supports Rossi's allegations that GAF joined with Standard and Arzee (and potentially others) to enforce a market-wide boycott of first Rossi Florence and later Rossi Roofing, The evidence comes in several forms. First, as we will detail, Rossi has adduced evidence that GAF received numerous complaints about Rossi's pricing practices while he was at Standard and responded to them by asking Rossi to raise his resale prices on GAF product. While these complaints antedate Rossi entering the marketplace, they are useful background information to establish motive and practice. See Big Apple BMW,
Second, GAF participated in the group boycott against Rossi through monitoring and enforcement activities and the implementation of an unprecedented anti-transshipment policy. Third, there is evidence that GAF singled out Rossi and acted contrary to its own corporate policy in refusing to deal with him (an important factor under Monsanto and Matsushita ), in that GAF employees testified that the company had an "open distribution" policy under which they sold to all comers, yet GAF refused to sell to Rossi and went to considerable lengths to see that he was not able to secure GAF product from other sources. Finally, Rossi has also adduced evidence that two of GAF's explanations why it refused to deal with him--that it had adequate distribution in New Jersey and product shortage--were pretextual.
(a) Distributors' Complaints and GAF's Response
While Rossi worked at Standard, the company received, as did Arzee and Allied, the off-invoice, non-volume rebates discussed supra. Rossi used these rebates to reduce the prices he charged to his customers in an effort to increase sales volume; he did not, as his competitors did, retain the rebates to increase gross profits. This aggressive price-cutting strategy understandably angered Standard's competitors, and several of them complained to GAF about Rossi's behavior. Krusa and Licciardello, both then working as GAF district sales managers in the New Jersey region, frequently called Rossi at Standard and passed along the complaints of Arzee, Allied, Passaic Metals and others about Rossi's pricing. Krusa and Licciardello also called Bob Schaab, the Controller of Standard, to complain that Rossi was passing on the discounts given by GAF to Standard to his customers.
Although GAF did not have suggested resale prices, Krusa and Licciardello told Rossi to raise his resale prices for GAF product. Schaab, relaying GAF's messages, also asked Rossi to refrain from passing the GAF rebates to Standard's customers. Rossi refused, and vowed to price as he saw fit. This evidence suggests several things. First, it reaffirms the motives of Rossi's horizontal competitors, Arzee and to a lesser extent Standard. Second, it shows that a group of distributors (even a group that did not include Standard) could wield economic leverage over GAF and influence its interactions with recalcitrant distributors. Third, it suggests that GAF's course of conduct was to curry favor with its larger distributors by doing what it could to assist them in stabilizing the market and keeping price levels up.
We agree with GAF that evidence that it succumbed to pressure from distributors is not sufficient, by itself, to survive summary judgment, since the evidence of complaints and threats GAF received from Standard and Arzee is not enough in isolation to prove concerted action. See Monsanto,
(b) Actions in Contravention of GAF Corporate Policy
GAF's boycott against Rossi appears to be contrary to its own corporate policy, particularly in light of the evidence adduced of GAF's draconian enforcement and anti-transshipment activities. There is testimony in the record that GAF had an open distribution system. Peter Bacchione, GAF's director of marketing and sales and Krusa's superior in 1989, testified that GAF never had a closed distribution network and never rejected a potential distributor because the local market was saturated. Bacchione testified:
Q: Do you recall in 1989 whether GAF, with respect to the roofing products that you had responsibility for, had any particular objectives with respect to increasing, decreasing, or otherwise, its distribution channel.
A: ... We always looked to increase our share of business with any distributor.
Q: Did GAF have any exclusive distributors for roofing products while you were national sales director?
A: No.
* * *
Q: Wasn't GAF's philosophy to have an open distribution network?
* * *
A: Maybe it was--maybe it was a philosophy. A practice. Whether it was a philosophy that was up on a wall some place, I don't recall that.
Q: Was it the practice?
A: Generally, we sold on an open basis. There were no exclusivities.14
This testimony directly contradicts GAF's litigation position as stated by Krusa, who has maintained since 1989 that GAF refused to supply Rossi because it had "adequate distribution."15 Krusa is also contradicted by Lorraine Campbell, Ruth Rogers, Mary Lou Sperr and Bob Tafaro, all of whom worked for Krusa, and all of whom testified that Krusa never told them that GAF had adequate distribution in New Jersey. Finally, Rossi submits that Krusa is contradicted by the fact that GAF supplied 34 out of the 39 distributors in northern New Jersey, and only refused to sell to three distributors including Rossi Roofing. On summary judgment, of course, we need not resolve this dispute, but rather grant Rossi all favorable inferences.
(c) Monitoring and Enforcement Activities
GAF, through Krusa and Licciardello, took still more steps to ensure that Rossi did not get any GAF product. In January 1989, when Droesch told Krusa that he planned to buy GAF product through his Florence Corporation in Long Island and resell it to Rossi Florence, Krusa told Droesch that "he would not allow that and he would not sell me [sic] in Long Island if I did that." GAF also warned other distributors not to resell its products to Rossi, and there is evidence that, on at least one occasion, GAF took steps to enforce its boycott. GAF salesmen Sal Granfort and Doug Collins warned DiNaso & Sons, a roofing and siding distributor located in Staten Island, New York, not to resell its product to Rossi. After DiNaso & Sons ignored their warnings, GAF raised DiNaso's prices by $1.00/unit, arguably in retaliation. Similarly, when Rossi contacted Stroeber Supply, another northern New Jersey distributor, to see if it would sell GAF product to him, Larry Hammershock of Stroeber told a Rossi Roofing employee that Stroeber had already been told by GAF not to sell GAF product to Rossi Roofing. Hammershock defied GAF and sold to Rossi Roofing anyway, but at a higher price.
There is also evidence that GAF extended the boycott to buying groups like HWI and Servistar which Rossi began to use, in addition to distributors like Stroeber and DiNaso, to try to circumvent the GAF boycott.16 To this end, Rossi joined HWI in July 1989 and placed an order for GAF product. Membership in HWI ordinarily should have allowed Rossi to purchase products from all of HWI's suppliers, including GAF. Likewise, GAF normally supplied its products to all HWI members, regardless of whether they appeared on GAF's own customer list. Notwithstanding this, when a Rossi Roofing driver went to GAF's facility on July 27, 1989, to pick up the GAF product ordered through HWI, GAF would not release it. After several hours of wrangling over the order, Rossi eventually spoke with Krusa, who had given the order not to release the GAF product. Krusa told Rossi "I am not selling to you. The distribution is filled. GAF requires no other distributors." Rossi replied that GAF was not really selling to Rossi Roofing, but rather to HWI, to which Krusa responded, "We are not selling to you." After this dramatic exchange, Dave Heine of HWI remarked that he had never seen anything like this in his ten years working at the buying group. App. at 2596, 3513.
In yet another effort to obtain GAF product and circumvent the boycott, Rossi used Far Hills Lumber and Hardware ("Far Hills"), a start-up hardware store of which he was a principal, to place orders through the buying group Servistar. See supra § II.B.2.a and infra § II.B.2.c. Rossi was able to purchase one order of $30,000 worth of GAF product on August 2 and 3, 1989. However, after GAF and Standard found out that Rossi had used Far Hills and Servistar to get GAF product, see infra § II.B.2.c, GAF refused to fill Far Hills' second order for $456 of GAF product.
Rossi has also adduced evidence that GAF and Standard coordinated to ensure that Rossi was not getting any GAF product. See supra § II.B.2.a. Rossi developed evidence that Licciardello of Standard confirmed with Gessner of GAF that GAF was not selling to Rossi, and there is evidence that, after seeing GAF product in front of Rossi Roofing, Licciardello called and was reassured by GAF that the load was not for Rossi but bound for Walmart on a Jentar truck. See id. In addition, there is the statement made by Licciardello after he learned that Rossi Roofing had been getting GAF product through Far Hills and Servistar that " 'that's the last time we're going to be seeing any GAF across the street.' They got the--they were getting the loads through [Far Hills], which is [Servistar]. That's how Joe Rossi was getting GAF and he's [Licciardello] going to put an end to that. 'Never going to see another GAF load across the street.' " See supra § II.B.2.a.(d) Pretextual Excuses
Finally, Rossi argues that GAF used pretextual excuses to explain why it refused to supply Rossi, and that this use of pretext is further circumstantial evidence of the conspiracy he alleges. See Fragale,
This "adequate distribution" excuse is just the "flip side" of Rossi's contention that GAF was acting in contravention of its open distribution policy, and for the same reasons that there is a genuine issue whether GAF's policy was to supply all distributors who wished to purchase its products, there is also a genuine issue of material fact whether the "adequate distribution" justification Krusa gave to Rossi was legitimate or simply pretextual. We note again that GAF supplied its roofing product to at least 34 of the 39 distributors in the northern New Jersey marketplace, but not to Rossi.
GAF's second excuse, which Rossi submits was also pretextual, was that GAF had a product shortage and therefore could not supply any new distributors. Rossi contends that there is a genuine issue of material fact as to the validity of this excuse because Bacchione, GAF's national sales manager, testified that he could recall no problems in filling customer orders for GAF product in 1989, despite the fact that this would have been a matter within his job responsibilities. In addition, Rossi argues that the only document GAF has been able to produce to corroborate Krusa's claim that GAF product was in short supply in 1988 and 1989 was a memorandum dated August 11, 1989. Rossi submits that this memorandum should not be considered conclusive for the purposes of summary judgment because it was written almost nine months after GAF had decided not to supply Rossi Florence. GAF counters that the memorandum refers to the product shortage as a "continuing" issue, and therefore that summary judgment is appropriate.
The critical language in the memorandum is:
We continue to have an im-balance of inventory between Baltimore and So. Bound Brook. The lack of warehousing has been a very critical issue, causing the im-balance in inventory.
We are receiving more calls, on a daily basis, from customers in the southern half of the district complaining of our lack of product and the congestion of trucks and also the length of time it takes to get loaded at the Baltimore Plant.
Our reading of the document is that it is ambiguous and therefore insufficient to command summary judgment. For example, it is unclear whether the memorandum refers to an overall GAF product shortage or just a warehousing "imbalance" that was temporarily interfering with delivery to the southern half of Krusa's territory. Also, while the memorandum refers to the problem as a "continuing" one, there is no indication what that means. On summary judgment, viewing the evidence in a light most favorable to Rossi, he has established a genuine issue of fact whether both the "adequate distribution" and the "product shortage" excuses were pretextual.
(e) Conclusion
To summarize, we find that Rossi has adduced competent evidence that GAF: (1) responded to distributor complaints in the past; (2) singled out Rossi as one of the few distributors out of a large number in northern New Jersey not to receive GAF product; (3) acted in contravention of its own established open distribution policy in dealing with Rossi; (4) threatened and punished distributors who resold to Rossi; (5) refused to supply Rossi through buying groups; (6) implemented an unprecedented policy prohibiting transshipment of GAF product to Rossi; (7) cooperated with Standard in monitoring and enforcing the boycott; and (8) offered pretextual excuses to explain its behavior. Examining the totality of this evidence, it is sufficient to support a reasonable inference that GAF was acting in concert with Standard and Arzee to boycott Rossi.
Particularly forceful is the evidence that GAF prohibited distributors from trans-shipping GAF product to Rossi and that GAF prevented Rossi from purchasing its products from buying groups. These actions simply do not make sense in light of GAF's asserted justifications for its behavior vis a vis Rossi. For example, if there were truly a product shortage in northern New Jersey, presumably GAF would then have cut off supply to all Servistar and HWI members who were not on GAF's approved customer list to ensure that its larger distributors like Standard and Arzee would not suffer from the short supply. Yet, GAF supplied Far Hills, also an entity that was not on GAF's customer list, until it discovered that Far Hills was under Rossi's control. Moreover, the product shortage excuse is not consistent with GAF's claim that it unilaterally implemented a policy precluding trans-shipment of product at the distributor level. Assuming that GAF product was scarce, GAF would understandably want to ensure that its favored distributors received it ahead of all others. However, once GAF decided how it would allocate among its approved distributors whatever amount of GAF product existed, it is difficult to conceive of a legitimate reason why GAF would care whether that distributor used the product or resold it to Rossi Roofing at a profit.
Additionally, the product shortage justification does not explain why GAF would sell Droesch as much GAF product as he wanted in Long Island but would not allow him to trans-ship that product to New Jersey. Similarly, it is hard to comprehend why GAF would continue to fill $30,000 orders, obviously commercial-sized purchases, to buying group members in northern New Jersey, if it was truly believed that it had adequate distribution in that market. One explanation of this behavior is that GAF was acting in concert with Standard, Arzee, and Allied to boycott Rossi and force him out of business.
For the reasons described above, Rossi has met his burden of adducing evidence that tends to exclude the possibility of independent action, and hence we will reverse the district court's order granting summary judgment in favor of GAF.
c. Servistar
In contrast to the defendants discussed above, we will affirm the district court's grant of summary judgment in favor of Servistar because Rossi has failed to introduce either direct or circumstantial evidence that tends to exclude the possibility that Servistar acted independently rather than joining the conspiracy against Rossi.
Servistar's involvement in this case stems from its refusal to honor Rossi's second purchase request for $456 of GAF product on August 11, 1989. Rossi had already obtained a little over $30,000 of GAF product on August 8 and 9, 1989, via his Far Hills account with Servistar, which was resold to Rossi Roofing. Two days later, when Rossi attempted to order a second batch, Servistar did not fill it, claiming that GAF had cut Far Hills off from obtaining GAF product. Rossi contends that after he received the first order of GAF product, Standard and Arzee discovered how he had circumvented the blockade, notified GAF, and that GAF then enlisted Servistar to join the group boycott and cut off this new avenue of supply. Rossi offers three pieces of evidence to support this allegation: (1) a discussion he had with Jim Cherbonneau of Servistar in which Cherbonneau told him that GAF did not want Servistar to ship its product to Rossi and that GAF would not supply Rossi through his Servistar account;17 (2) Servistar's curious and sudden change of mind, selling Rossi $30,000 of GAF product one day and refusing a minuscule $456 order two days later; and (3) Servistar's use of the allegedly pretextual excuse that Far Hills had credit problems to justify its refusal to deal.
Rossi's only direct evidence, the phone conversation with Cherbonneau, is not evidence of Servistar's conspiratorial involvement. Cherbonneau said that "GAF would not sell product to Servistar to go to--through [Far Hills] to me." Cherbonneau's statement, while not precluding concerted action, is evidence only of a unilateral decision by GAF to not supply Rossi through any means (or a multilateral conspiracy that did not include Servistar). Additionally, it is undisputed that Servistar could not force GAF to supply it or its members with GAF product. Unlike other products Servistar supplied, Servistar neither stored GAF product in its warehouses nor had the contractual right to compel GAF to supply the product. The Servistar-GAF purchasing agreement did not obligate GAF to accept all of Servistar's members' orders.
Because Servistar provided GAF product to its members on what is known in the industry as a "drop shipment" basis, it had no control over whether its suppliers would actually deliver their products to its members. The "drop shipment" relationship between Servistar and GAF meant that when a Servistar member placed an order with Servistar for GAF product, Servistar would forward that order to GAF. The member would then go to the GAF warehouse to pick up the GAF product directly from GAF, not Servistar. GAF then would invoice Servistar for the purchase, and Servistar would pay GAF. Subsequently, Servistar would collect the amount due from its member. Using this "drop shipment" purchasing method, Servistar assists its members by: (1) negotiating group discounts from manufacturers, and (2) acting as the guarantor of its members' credit to those manufacturers. Thus, Servistar's role did not include pre-purchasing and warehousing of GAF product, and it had virtually no say over which of its members GAF chose to supply.
Under these circumstances, Rossi's claim that "at the request of GAF, Servistar refused to fill Far Hills' next order for $450 because Far Hills had resold it to Rossi Roofing," is not supported by Rossi's own testimony. As described above, according to the undisputed evidence, GAF did not have to conspire with Servistar to boycott Rossi Roofing because GAF did not need Servistar's acquiescence to prohibit Far Hills or Rossi Roofing from buying its product through Servistar. Since there is no evidence that Servistar could overrule a unilateral GAF decision to refuse to supply a Servistar member, we cannot reasonably infer on the basis of such ambiguous evidence that Servistar and GAF agreed to refuse to sell to Far Hills. See International Logistics Group Ltd. v. Chrysler Corp.,
Similarly, Rossi's allegation that Servistar made no effort to require GAF to fill the order of its member Far Hills does not support his theory of conspiracy. Without direct evidence (or other strong circumstantial evidence) of concerted action by Servistar and GAF, we cannot draw an inference of an unlawful conspiracy from the equivocal nature of Servistar's decision not to make what would most likely have been a futile effort to encourage GAF to sell to Rossi. Servistar's refusal to disrupt its relationship with GAF because GAF unilaterally (from Servistar's perspective) refused to deal with Rossi is clearly "as consistent with permissible competition as with illegal conspiracy," Matsushita,
Without direct evidence with respect to Servistar, we must also consider whether Rossi's conspiracy theory is plausible, and whether inferring concerted action under these circumstances would have the effect of deterring significant procompetitive conduct. See Petruzzi's,
Perhaps most importantly, inferring a conspiracy from the slim circumstantial evidence would have the effect of deterring Servistar's significant procompetitive conduct in this as well as many other markets. As a wholesale purchasing cooperative, Servistar bolsters competition and increases economic efficiency by aggregating small purchasers thereby permitting them "to achieve economies of scale in both the purchase and warehousing of wholesale supplies, and also ensur[ing] ready access to a stock of goods that might otherwise be unavailable on short notice. The cost savings and order-filling guarantees enable smaller retailers to reduce prices and maintain their retail stock so as to compete more effectively with larger retailers." Northwest Wholesale Stationers,
Because Servistar could not compel GAF to sell to Far Hills, Servistar's only option in response to GAF's decision not to supply Far Hills would have been to somehow bring pressure to bear on the roofing manufacturer. Such action would undoubtedly adversely affect all Servistar members nationwide who were receiving improved pricing for GAF product through Servistar, especially if it led to the restriction or cessation of Servistar's purchasing agreement with GAF. Indeed, inferring concerted action in these circumstances could encourage Servistar to terminate relationships with every supplier that refused to sell to a particular Servistar member. This would deter Servistar's procompetitive activities and deny Servistar's members the significant benefits of cooperative membership.
Finally, Rossi submits that Servistar offered a pretextual excuse to explain its decision not to supply Far Hills with GAF product. Pretextual excuses, as noted, can disprove the likelihood of independent action. See Fragale,
d. Wood Fiber
Like GAF, Wood Fiber manufactures roofing products, including Structodek FS, which is widely used in certain commercial roofing applications. Unlike GAF, however, Wood Fiber is only tangentially involved in the alleged conspiracy with its activity centering around a single incident in which Rossi was frustrated in his attempt to purchase approximately $5,000 worth of Structodek FS. We will affirm the district court's grant of summary judgment in favor of Wood Fiber because, as with Servistar, Rossi has failed to introduce evidence that tends to exclude the possibility that Wood Fiber acted independently rather than joining the conspiracy against Rossi.
On June 6, 1989, Rossi Roofing ordered Structodek FS from Wood Fiber for its customer, Star Roofing. Wood Fiber quoted a price and a shipping date of July 5th to Rossi Roofing. On June 27, 1989, Karl Loser, Wood Fiber's sales representative in New Jersey, called and told Rossi Roofing's Mike Issler that Wood Fiber would not fill the order. As a result, Rossi Roofing lost the order for Structodek FS from Star Roofing. Rossi claims that Loser told him that Wood Fiber was being pressured by Standard and Arzee not to sell to him and that there was a "problem" with his pricing. Loser also told Issler that Wood Fiber had previously sold product to a small distributor on Long Island and suffered when Allied canceled orders in retaliation. Loser testified that he wanted to supply Rossi Roofing, but that his concerns that Rossi Roofing's competitors would retaliate "influenced" his decision not to supply Rossi Roofing.
Based upon these facts, Rossi asks us to infer that Wood Fiber participated in a conspiracy to boycott Rossi Roofing because it gave in to pressure and fear of retaliation by several of its distributors. It is well established that this kind of evidence, by itself, is legally insufficient to prove a conspiracy. See Monsanto,
We have explained at length supra why the claims against Standard, Arzee, and GAF survive, notwithstanding these precedents. However, because Rossi has not adduced evidence of anything other than the fact that Wood Fiber may have responded to pressure and threats from Standard and Arzee, we cannot infer the existence of concerted action involving Wood Fiber. The evidence adduced against Wood Fiber stands in stark contrast to the evidence against GAF. For example, Rossi has not adduced any evidence that Wood Fiber offered pretextual excuses, or prohibited transshipment of its product, or engaged in monitoring and enforcement of the alleged boycott. Without some additional evidence, a fact finder may not infer that Wood Fiber entered into an agreement to boycott Rossi Florence or Rossi Roofing, and therefore we will affirm the district court's order granting summary judgment in favor of Wood Fiber.
III. PROXIMATE CAUSE AND ANTITRUST INJURY
Having determined that Rossi has adduced sufficient evidence of a conspiracy to satisfy the first prong of the prima facie case with respect to the Standard defendants, the Arzee defendants, and GAF, we now consider whether Rossi has adduced sufficient evidence to satisfy the fourth prong, "that the plaintiffs were injured as a proximate result of that conspiracy." Tunis Bros.,
The district court concluded that even if Rossi had established the existence of an agreement, his claim still would fail because he had not established that the business losses he suffered were in any way related to that conspiracy. See Rossi v. Standard Roofing, Inc.,
The district court accordingly held that Rossi had not presented sufficient evidence of damages such that a reasonable inference could be made connecting the injury with the defendants' conduct. For the reasons we will explain, we disagree with the court's conclusion that Rossi has not identified a genuine issue of material fact with regard to the proximate cause and damages element of his prima facie case.
To recover damages, an antitrust plaintiff must prove causation, described in our jurisprudence as "fact of damage or injury." See Danny Kresky Enters. Corp. v. Magid,
[Plaintiff's] burden of proving the fact of damage under § 4 of the Clayton Act is satisfied by its proof of some damage flowing from the unlawful conspiracy; inquiry beyond this minimum point goes only to the amount and not the fact of damages. It is enough that the illegality is shown to be a material cause of the injury; a plaintiff need not exhaust all possible alternative sources of injury in fulfilling his burden of proving compensable injury under § 4.
Once causation is established, the jury is permitted to calculate the actual damages suffered using a " 'reasonable estimate, as long as the jury verdict is not the product of speculation or guess work.' " In re Lower Lake Erie Iron Ore Antitrust Litig.,
Under these standards, Rossi's antitrust claim does not suffer from the infirmities claimed by the district court. At the threshold, it is important to note that we need only concern ourselves with the first element of antitrust injury, causation. At this procedural juncture, reviewing the district court's grant of the defendants' motions for summary judgment, 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. Rather, here, all we are concerned with is whether Rossi has established that the defendants' "illegal conduct was a material cause of [his] injury." Danny Kresky,
We find two sources of evidence sufficient for Rossi to demonstrate fact of injury or causation: (1) evidence of specific lost transactions based upon Rossi's inability to purchase product; and (2) the Rockhill Damage Report. We discuss these in turn.
We have already explained that there is ample evidence in the record that Standard, Arzee, and GAF conspired to deny Rossi access to GAF product and prevent him from competing in the roofing and siding business in northern New Jersey. See supra § II.B.2.a & b. Also, there is evidence that, with a few exceptions, the defendants successfully prevented Rossi from obtaining GAF product. See id. Moreover, there is evidence that GAF product was highly desirable, if not critical, to Rossi's target customers. See supra § II.B.2.b(1). Finally, several of Rossi's former customers from his Standard days, including Sean Coffey, Francis Doherty, John Feher, Albert Logan, and Melvin Stanley, have testified that they would have done business with Rossi Roofing if he had access to the necessary products, primarily GAF product.
This evidence is enough by itself to satisfy Rossi's burden on causation for the purposes of summary judgment. Rossi has put forth evidence that the defendants' alleged conspiracy unlawfully prevented him from obtaining GAF product, and that he lost multiple sales as a result. Thus, if Rossi can successfully prove the existence of the conspiracy, he will have proved fact of injury. The case before us is not analogous to Van Dyk Research Corp. v. Xerox Corp.,
In the same vein, Amerinet is not availing to the defendants either. In Amerinet, the Eighth Circuit concluded that the plaintiff had not shown antitrust injury or causation in large part because statements and assertions by its own damage expert "strongly suggest[ed] ... that [plaintiff's] decline was caused at least partly by, if not substantially or mainly by, other factors than [defendant's] alleged antitrust violations." Amerinet,
Here, Rossi's evidence is more substantial than in either Van Dyk Research or Amerinet. 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 allegedly unlawful actions.
The district court also utterly rejected Rossi's damage expert, holding that his report was nothing more than a "but for" damage model that failed as a matter of law to support Rossi's damage allegations. We believe, however, that the Rockhill Report, when combined with the testimony concerning the five lost sales, is indicative of a larger pattern of loss and helps Rossi demonstrate causation. Thus, while the other damage evidence is enough alone to satisfy Rossi's summary judgment burden, for the guidance of the district court on remand, we nonetheless consider the Rockhill Report.
A typical "but for" damage model, like the one in Southern Pacific Com. Co. v. American Tel. & Tel. Co.,
First, they do not attempt to measure the particularized effects of any specific alleged illegal practices, but rather rely on an aggregation of injury from all factors. See Southern Pacific,
The Rockhill Report is in many respects a "but for" damage model because it does not deal with the particularized effects of specific injuries, but rather aggregates all of Rossi's damages into one figure. Relying on Van Dyk Research and Southern Pacific, defendants argue that all "but for" models should be precluded as a matter of law from serving as a basis for antitrust causation and damage calculation. We do not agree with the defendants' reading of these cases (and, at all events, are not bound by them), which we conclude only stand for the proposition that some, not all, "but for" models are too speculative and must be precluded as a matter of law. The Rockhill Report, as we shall see, is much less speculative and does not suffer from many of the flaws in the damage models discussed in Van Dyk Research and Southern Pacific, and thus it is not comparable with them.
Rockhill made two major assumptions in calculating the damages Rossi suffered because of his inability to procure products. First, he estimated that Rossi Florence and/or Rossi Roofing would have achieved the same pattern of sales revenues (and revenue growth) beginning in 1989 and extending to 2008 that ABC's Morristown sales branch actually achieved from 1990-1993, operating out of the same location, with Rossi as branch manager. Rossi makes a strong argument that this estimate took into account the poor general business conditions that existed at the time, as well as any other extrinsic factors not related to the defendants' alleged boycott, because Rockhill based his estimate upon actual sales figures Rossi was able to achieve competing against the same firms, selling the same products at the same location to the same customers under the actual business conditions that existed at the time.21 The second major assumption in the Rockhill Report is that Rossi would have been able to manage Rossi Florence and Rossi Roofing in the manner that he had run Standard's Morristown branch from 1974-1987. Rockhill used Standard's Morristown branch financial statements to develop 14-year averages for cost of sales, payroll expenses, equipment expenses, and administrative expenses (as a percentage of total sales) and applied them to the sales estimate. This kind of estimate, while perhaps not one upon which we would base our own personal investment decisions, nevertheless is sufficient to establish causation (especially when considered in conjunction with the five lost transactions).22
On the subject of the Rockhill Report, we add that the defendants' criticism that the report is flawed as a matter of law because it improperly mixes data using "a variety of sources including the historic operations of Standard; ABC actual data; input from Mr. Rossi; and judgment" is unavailing. Rockhill used actual data to support his estimates, and thus they are based upon a "reasonable foundation." See Danny Kresky,
Finally, the defendants attack the evidence supporting Rossi's assertion of damages on several other bases. Defendants submit that Rossi Florence and Rossi Roofing 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. One or more of these reasons, particularly the theory that it was the recession, not a conspiracy, which mortally wounded Rossi's business efforts, might explain Rossi's failure in the roofing and siding business in northern New Jersey, and could conceivably result in a verdict for the defendants at trial. They are, however, unavailing to the defendants at this stage of the case because 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.
Standard also argues that Rossi failed to establish causation because an essential element in causation involves proving that there are no comparable substitutes for the desired product--here, GAF product. See Elder-Beerman Stores Corp. v. Federated Dep't Stores, Inc.,
In sum, Rossi has established a prima facie case of antitrust injury with respect to Standard, Arzee, and GAF. He has 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. The combination of this evidence, while not conclusive, provides enough of a foundation that an eventual finder of fact would be justified in making a "just and reasonable inference" of the damages Rossi may have suffered as a result of the defendants' allegedly unlawful activities.
IV. STATE LAW TORTIOUS INTERFERENCE WITH CONTRACTUAL AND
PROSPECTIVE CONTRACTUAL RELATIONS
The district court dismissed Rossi's state law tortious interference claims against defendants with no discussion. It very well may be, as some of the defendants suggest, that the district court concluded when it dismissed Rossi's state law claims that Rossi had not shown any wrongful or intentional conduct designed to interfere with alleged contractual or prospective contractual relationships. If that is the case, then based upon our disposition here, the state law claims will likely have to be reinstated with respect to the Standard defendants, the Arzee defendants, and GAF since we have found that there is sufficient evidence of their participation in an unlawful conspiracy to boycott Rossi. However, the district court may have had some other reason for dismissing these claims of which neither we nor the parties before us is aware. Our jurisprudence requires district courts in this circuit to accompany grants of summary judgment with an explanation sufficient to permit the parties and this court to understand the legal premise for the court's order. See Vadino v. A. Valey Eng'rs,
V. CONCLUSION
For the foregoing reasons, we will affirm the district court's judgment on the federal antitrust issues with respect to Servistar and Wood Fiber, but reverse on those issues with respect to the Standard defendants, the Arzee defendants, and GAF. We will also reverse the district court's judgment dismissing the state claims with respect to all defendants. The case will be remanded for further proceedings consistent with this opinion.
Notes
Honorable Gustave Diamond, United States District Judge for the Western District of Pennsylvania, sitting by designation
* Honorable Edward R. Becker, United States Circuit Judge for the Third Circuit, assumed Chief Judge status on February 1, 1998
Defendants contend that Joseph Rossi lacks standing as an individual to pursue this matter against them because his personal claims of injury are derivative of the claims of Rossi Florence and Rossi Roofing. The district court did not reach that issue because it found that no antitrust violation existed at all. See Rossi v. Standard Roofing, Inc.,
Section I.B, infra, provides further information about Rossi's career at Standard
1989 sales of GAF product in the northern New Jersey market (rounded to the nearest $100,000) were:
Company Amount % of Total Sales Standard $ 7,700,000 32.0% Allied $ 2,100,000 8.7% Arzee $ 900,000 3.8% -------- ----------- -------- Total $10,700,000 44.5%
There is little evidence as to what the net profits (or losses) of the ABC branch were. Arzee contends, based upon some nebulous testimony in the record, that the ABC branch run by Rossi suffered losses in each of its four years of operation, app. at 4253-56, and that the Morristown branch of ABC was a failure, generating only $5 million in revenues in 1990, $1.7 million less than Rossi's own break-even figure for Rossi Roofing. App. at 4309-10
State law claims for breach of contract, conversion, fraud, and negligent misrepresentation, arising out of Rossi's contractual relationships with Standard, were dismissed without prejudice and are not under review here
We have also recently discussed a third standard that falls somewhere between the rule of reason and per se standards. In our jurisprudence, we refer to this middle ground as an abbreviated or "quick look" rule of reason analysis. See Orson, Inc. v. Miramax Film Corp.,
In Business Elecs., the Supreme Court indicated that the rationale behind applying the rule of reason to vertical non-price restraints is that such restraints have the potential to promote inter-brand competition, the "primary concern of the antitrust laws," over intra-brand competition. See
The Courts of Appeals have differed in their application of this language. The Seventh Circuit has held that "once control over an important resource appears, no justification for a refusal to deal can be considered." Areeda & Hovenkamp, Antitrust Law p 1510 (interpreting Fishman v. Estate of Wirtz,
A district court's grant of summary judgment is subject to plenary review. See Knabe v. Boury Corp.,
As in this case, when the nonmoving party will bear the burden of proof at trial, that party must adduce evidence "sufficient to establish the existence of [every] element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett,
In our discussion of Standard, Robert Higginson, William Higginson, Joseph Licciardello, and also Arzee, Alvin Roth, and Cary Roth, we find no basis to separate the individual defendants from their respective corporate employers. Thus, for shorthand purposes, when we make future reference to "Standard" or "Arzee," (or the "Standard defendants" and the "Arzee defendants"), we refer to the individuals as well as the corporate entities with which they are related
Arzee argues that this statement is not admissible against it under Bourjaily v. United States,
As will be made clear in the discussion that follows, the record is replete with circumstantial evidence that Licciardello, Standard, and Arzee were members of a conspiracy to boycott Rossi and drive him out of business. See infra § II.B.2.a. As the record also shows, Licciardello's threat was made during the conspiracy and in furtherance of it. We conclude therefore that Rossi has satisfied the preponderance standard with respect to all four requirements.
Standard and Arzee both raise questions about whether this conversation actually took place. In addition to denying it, they point out that Mulcahy did not hear the voice of the person on the phone, and only heard Licciardello talking to someone named "Cary." Mulcahy assumed the person on the other end of the line was Cary Roth. As this is before us on a motion for summary judgment, we conclude that, in a light most favorable to Rossi, a jury could infer that "Cary" was Cary Roth of Arzee
While offered in hearsay form, we will consider these statements because they are capable of being admissible at trial, see Petruzzi's,
Bacchione appears to contradict himself during his deposition. For example, in reference to the decision whether to open up ABC as a distributor after Rossi Roofing had gone out of business, Bacchione also said: "The concern was not whether or not to open up another distributor. The concern was whether or not we had adequate distribution, I think was the subject at hand. I think we felt there was adequate distribution.... There was not a valid reason to open up another distributor [next door to Standard]." This contradictory testimony leads to two possible conclusions, and on summary judgment, we must accept the one most favorable to Rossi
For example, Krusa allegedly told Droesch in January 1989 that GAF would not sell to Rossi Florence in New Jersey because it had adequate distribution. In July 1989, when Krusa prevented Rossi from picking up an order of GAF product from HWI, Rossi spoke with Krusa who told him, "The distribution is filled. GAF requires no other distributors."
Rossi contests the district court's affirmance of an order by the magistrate judge, denying his motion to compel GAF to disclose the names of the entity or entities that were the subject matter of certain conversations between GAF's in-house counsel Robert Poyourow and Krusa on July 27, 1989, August 10, 1989, and January 6, 1990. Rossi hypothesizes that several of these discussions centered around HWI and Servistar, and he submits that the district court abused its discretion when it accepted GAF's description of the "subject matter" of these conversations on its privilege log as "absence of a legal obligation to sell product." We conclude, however, that the district court did not abuse its discretion by denying Rossi's motion to compel the name of the entity discussed or any other additional information concerning the "subject matter" of the conversation catalogued in GAF's privilege log. See United States ex rel. Rabushka v. Crane Co.,
Cherbonneau told Rossi, "GAF called, they knew where the product was going. They had filled their needs in that area, and [ ] they do not want us to ship to you."
Sales of GAF product through Servistar, estimated at about $2.5 million, comprised only 12% of Servistar's total roofing purchases on behalf of its members and an insignificant fraction of Servistar's one billion plus national purchases in 1989
On the one hand, the record indicates that Servistar refused Far Hills credit on August 15, 1989, even though Far Hills had only used $30,755 of its outstanding $75,000 credit limit and no payments were yet due. On the other hand, Servistar contends that it extended the $75,000 credit limit to Far Hills for the purpose of funding hardware purchases, not roofing supplies. According to Servistar's forceful rejoinder, the initial order of $30,755 was an error, and after it was discovered, Servistar unilaterally determined not to permit it to happen again
As explained above, because Rossi's allegations qualify for per se treatment, the second and third prongs of the four-part antitrust prima facie case are conclusively presumed. See supra § II.A
Defendants also complain that it is inappropriate to use sales figures Rossi achieved working for ABC, a major national chain, to estimate the revenues that Rossi Florence or Rossi Roofing would have achieved without the boycott. This position has some force and is certainly an appropriate argument to advance before the trier of fact; however, it is not uncontroverted. There is ample evidence in the record that wholesale roofing and siding sales has a strong local accent, and that after price, service and reliability are the next most critical factors in customers' purchasing decisions. Rossi had a long track record in northern New Jersey, and several witnesses testified that they would patronize Rossi regardless of whom he worked for, as long as he carried the product they needed at a competitive price, because he provided the best service. Thus, it is not clearly evident that Rossi's sales figures with ABC (or Standard) would necessarily be higher than with Rossi Roofing
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 under which:
the jury [may] conclude as a matter of just and reasonable inference from the proof of defendants' wrongful acts and their tendency to injure plaintiffs' business, and from the evidence of the decline in prices, profits and values, not shown to be attributable to other causes, that defendants' wrongful acts had caused damage to the plaintiffs.... [When] [ ] tortious acts ... preclude[ ] ascertainment of the amount of damages more precisely, by comparison of profits, prices and values as affected by the conspiracy, with what they would have been in its absence under freely competitive conditions ... we [have] held that the jury could return a verdict for the plaintiffs, even though damages could not be measured with the exactness which would otherwise have been possible.
In such a case, even where the defendant by his own wrong has prevented a more precise computation, the jury may not render a verdict based on speculation or guesswork. But the jury may make a just and reasonable estimate of the damage based on relevant data, and render its verdict accordingly. In such circumstances 'juries are allowed to act on probable and inferential as well as [upon] direct and positive proof.' Any other rule would enable the wrongdoer to profit by his wrongdoing at the expense of his victim. It would be an inducement to make wrongdoing so effective and complete in every case as to preclude any recovery, by rendering the measure of damages uncertain.
Bigelow,
In Bigelow, the Supreme Court upheld a jury's damage award based upon a comparison of the plaintiff's actual profits with the contemporaneous profits of a competing theater with access to first-run films, which were illegally denied to plaintiff theater by a group of conspiring film distributors. See J. Truett Payne Co., Inc. v. Chrysler Motors Corp.,
Compared with these cases, Rossi's damage estimation is far less speculative. The sales revenues (at least for the first few years of the ten year estimate) were exactly those that Rossi actually achieved while working as ABC's branch manager at the same location. Thus, the jury here need not even speculate whether the comparison market (or location) is similar enough to serve as a basis for its damage estimate, as the jury had to in Bigelow and Zenith Radio. Similarly, both the sales and expenses are based on real world numbers, not pure conjecture by an optimistic new competitor. These numbers may or may not accurately represent what Rossi Florence or Rossi Roofing would have done had it stayed in business, but they are clearly not mere speculation or wishful thinking, as was the case in Van Dyk Research and Southern Pacific.