Willard M. NOBLE and Etta M. Noble, Plaintiffs-Appellees, v. McCLATCHY NEWSPAPERS, a corporation, et al., Defendants-Appellants. Willard M. NOBLE and Etta M. Noble, Plaintiffs-Appellants, v. McCLATCHY NEWSPAPERS, a corporation, et al., Defendants-Appellees.
Nos. 72-2021, 72-2042.
United States Court of Appeals, Ninth Circuit.
Nov. 14, 1975.
Rehearing Denied May 20, 1976.
537 F.2d 1030
Timothy H. Fine (argued), of the Law Offices of G. Joseph Bertain, Jr., San Francisco, Cal., for plaintiffs-appellees in 72-2021, for plaintiffs-appellants in 72-2042.
OPINION
Before BROWNING and TRASK, Circuit Judges, and GRAY,* District Judge.
BROWNING, Circuit Judge:
Willard Noble and his wife, Etta, were distributors of the Sacramento Bee newspaper. Their distributorship was cancelled. They brought this private antitrust action against McClatchy Newspapers, publisher of the Bee, and seven individuals.1
Three claims are at issue on these аppeals: First, that defendants violated
The case was tried to a jury. The jury returned a verdict for defendants on claim one (the termination claim) and three (the monopolization claim), and for plaintiffs on claim two (the sale-of-business claim). Judgment was entered in favor of plaintiffs on the sale-of-business claim in the amount of $63,333.04-$15,000 in damages, trebled, costs and attorneys’ fees of $18,333.04.
* Honorable William P. Gray, Unitеd States District Judge, Central District of California, sitting by designation.
BACKGROUND FACTS
Willard Noble was an independent city newsstand distributor for the Sacramento Bee from October 1, 1960, to July 1, 1969, under three contracts with McClatchy Newspapers. Etta Noble was a party to the third of these contracts, entered on April 18, 1969.
Under the distributorshiр contracts, plaintiffs were responsible for sale and distribution of the Bee in an area referred to as “Newsstand # 5,” encompassing a portion of the City of Sacramento and its suburbs. Plaintiffs purchased daily and Sunday copies of the Bee from McClatchy Newspapers at wholesale and resold them from newspaper vending racks and to retail outlets. Unsold papers could be returned at cost, but plaintiffs assumed full responsibility for copies lost through theft or other causes.
Paragraph nine of the distributorship contracts provided that if plaintiffs decided to transfer their route they would give McClatchy Newspapers sixty days’ notice, that McClatchy had “the right to determine the qualifications of the proposed new distributor,” and thаt McClatchy‘s consent to transfer “shall be required, and will not be unreasonably withheld.”2 Paragraph eleven provided that the contract “may be cancelled by either party at any time upon thirty days prior written notice to the other party.”
By letter dated May 27, 1969, McClatchy Newspapers cancelled plaintiffs’ distributorship effective July 1, 1969. The reason for this action was disputed. Plaintiffs contended their refusal to agree to split their distributorship territory “was a substantial factor in causing [McClatchy] to terminate them.” Defendants contended that the distributorship was terminated because of Willard Noble‘s “continued stream of complaints” regarding such matters as late delivery of papers and McClatchy‘s refusal to compensate distributors for theft losses.”3
According to defendants, the difficulties with Noble came to a head during a telephone conversation between Noble and defendant Carlo Bua, assistant circulation manager. Bua testified that the conversation “started as a griping session” during which Noble complained “about the thefts of his papers, the late papers, he couldn‘t get qualified help, and so forth and so on.” Noble questioned whether the Bee was properly accounting for theft losses in reporting its circulation to the Audit Bureau of Circulation, an independent organization whose audits of publishers’ circulation statements are heavily relied upon by advertisers. Noble also said he believed the distributorship contract was illegal insofar as it forbade bulk sales of unsold copies of
Conklin testified that Noble‘s complaints were “the straw that broke the camel‘s back“; his “patience was exhausted.” He consulted his supervisor, O. J. Brightwell, business manager of the Bee, explaining that “his department was no longer able to get along with Mr. Noble,” and recommending that he be terminated. Brightwell agreed. The cancellation letter was sent the following day.
A few days later Conklin told Bua, “now is the best time to split Newsstand 5.” He instructed Bua “to find a satisfactory boundary line.” Noble asked for reinstatement. Conklin refused. Noble asked if he could sell his distributorship. Conklin said “he had nothing to sell,” and in any event McClatchy had plans to split the distributorship. Noble asked that he be allowed to “retain a portion of [his] dealership if it was split.” Conklin refused.
Bua decided on a two-part division of Newsstand 5. Conklin initiated discussions with defendant Gary Downing, an employee of the Bee‘s circulation department, about becoming a distributor in a portion of Newsstand 5. Defendant James Gallagher, the Bee distributor for Newsstand 2, requested that he be considered for the remaining portion. Downing and Gallagher entered into distributorship contracts for the divided portions of Newsstand 5, effective July 1, 1969. With the permission of McClatchy, Gallagher sold his business in Newsstand 2 for $8,000.
DEFENDANTS’ APPEAL
The sole issue on defendants’ appeal is whether the district court erred in denying their motion for judgment n. o. v. or a new trial on plaintiffs’ sale-of-business claim.6 We agree with defendants that the motion should have been granted.
Instructions given by the district court on the sale-of-business claim are reproduced in the margin.7 According to these instruc-
Upon receipt of the letter of termination, as defendants accurately put it, “plaintiffs owned nothing but a contractual right to distribute the Bee for thirty-odd days.” The witnesses who testified regarding the value of this right agreed that it was worthless.10 Nothing in the distributorship contract purported to give plaintiff a right to sell, after termination, as if termination had not occurred.11 There was no
PLAINTIFFS’ CROSS-APPEAL
Because plaintiffs’ judgment on the sale-of-business claim must be reversed, we consider plaintiffs’ contention that they are entitled to a new trial on the termination and monopolization claims because of alleged errors in the jury instructions and in the admission and exclusion of evidence. We conclude that a new trial is required on the termination claim.
Plaintiffs alleged that their distributorship was terminated in substantial part because they refused to accede to defendants’ request that they give up a part of the territory covered by the distributorship. The district court instructed the jury as follows:
If you should find from the evidence that defendants or some of them wished plaintiffs to agree to confine their sales of the Sacramento Bee to a particular part of Newsstand No. 5, that the plaintiffs refused to agree to this, and that their alleged refusal was a substantial factor in the termination of the contract, you must then determine whether, if plaintiffs had agreed to the arrangements, an unreasonable restraint of interstate commerce would have resulted, as a result of being a part of an alleged arrangement between the Sacramento Bee, its distributors and carriers.
Plaintiffs contend that the district court should have instructed the jury that an agreement to restrict the territory in which newspapers purchased from McClatchy could be sold would have been a per se violation of
In United States v. Arnold, Schwinn & Co., 388 U.S. 365, 379, 87 S.Ct. 1856, 1865, 18 L.Ed.2d 1249 (1967), the Supreme Court held:
Under the Sherman Act, it is unreasonable without more for a manufacturer to seek to restrict and confine areas or persons with whom an article may be traded after the manufacturer has parted with dominion over it. . . . Such restraints are so obviously destructive of competition that their mere existence is enough. If the manufacturer parts with dominion over his product or transfers risk of loss to another, he may not reserve control over its destiny or the conditions of its resale.
The rule of Schwinn is unequivocal:
Once the manufacturer has parted with title and risk, he has parted with dominion over the product, and his effort thereafter to restrict territory or persons to whom the product may be transferred-whether by explicit agreement or by silent combination or understanding with
his vendee-is a per se violation of § 1 of the Sherman Act .
388 U.S. at 382, 87 S.Ct. at 1867.14
Although the wisdom of per se rules with respect to territorial restraints has been the subject of substantial commentary,15 the Supreme Court has adhered to Schwinn and, indeed, has expanded its prohibition. In United States v. Topco Associates, Inc., 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972), the Court held that horizontal as well as vertical territorial restraints were unlawful per se, rejecting the trial court‘s conclusion that the anticompetitive effect of a territorial restraint on intrabrand competition was outweighed by the increased ability of dealers in Topco-brand products to compete in the interbrand market. In justifying the per se approach in this area, the Supreme Court said (405 U.S. at 609-10, 92 S.Ct. at 1134):
The fact is that courts are of limited utility in examining difficult economic problems. Our inability to weigh, in any meaningful sense, destruction of competition in one sector of the economy against promotion of competition in another sector is one important reason we have formulated per se rules.
The Court noted (405 U.S. 609-10 n. 10, 92 S.Ct. 1134):
Without the per se rules, businessmen would be left with little to aid them in predicting in any particular case what courts will find to be legal and illegal under the Sherman Act. Should Congress ultimately determine that predictability is unimportant in this area of the law, it can, of course, make per se rules inapplicable in some or all cases, and leave courts frеe to ramble through the wilds of economic theory in order to maintain a flexible approach.
As the Fifth Circuit recently observed: “[W]e must accept the fact that the Court has set its face against both horizontal and vertical territorial restrictions, with the possible exception of vertically imposed restrictions by ‘new entrants’ and ‘failing companies’ briefly mentioned in Schwinn.” Copper Liquor, Inc. v. Adolph Coors Co., 506 F.2d 934, 943 (5th Cir. 1975).16
Defendants contend that application of Schwinn to the distribution of newspapers will be destructive of an orderly system essential to timely delivery of perishable news and advertising. There is nothing to indicate that independent distributors, their livelihood at stake, would fail to make timely delivery unless competition among them were eliminated by territorial restrictions. Lawful means less restrictivе of intrabrand competition are available if required to assure effective distribution.17 Defendants’
In any event the argument that need for speedy delivery of perishable products justifies an exception to the Schwinn per se rule has been rejected whenever raised. Adolph Coors Co. v. FTC, 497 F.2d 1178, 1187 (10th Cir. 1974); Fairfield County Beverage Distributors, Inc. v. Narragansett Brewing Co., 378 F.Supp. 376, 378 (D.Conn.1974); cf. Copper Liquor, Inc. v. Adolph Coors Co., supra, 506 F.2d at 947. In Albrecht v. Herald Co., 390 U.S. 145, 153-54, 88 S.Ct. 869, 874, 19 L.Ed.2d 998 (1968), a price-fixing case involving an independent newspaper distributor, the Supreme Court indicated that the Schwinn per se rule would be held applicable to just such a case as this.18
In Adolph Coors Co. v. FTC, supra, the Court of Appeals for the Tenth Circuit reluctantly applied Schwinn to the distribution of a perishable product, expressing the hope that “the Supreme Court may see the wisdom of grafting an exception to the per se rule when a product is unique and where the manufacturer can justify its territorial restraints under the rule of reason.” But an exception to Schwinn based upon asserted uniqueness of product would be difficult to administer, and would introduce an element of uncertainty the per se rule was intended to eliminate. United States v. Topco Associates, Inc., supra, 405 U.S. at 609 n. 10, 92 S.Ct. 1126. As we read the Schwinn opinion, manufacturers may avoid the per se rule only by vertical integration or adoption of agency or consignment methods of distribution.19 Manufacturers who wish to enjoy the advantages of distribution through independent entrepreneurs must be prepared to accept the burdens of Schwinn.
Manufacturers have a significant incentive to distribute their products through independent contractors rather than through employees, agents or consignees. Use of independent distributors avoids the substantial investment, expense, and risk incident to alternate methods of distribution.
The record in this case reflects other benefits. Paul Rothman, former circulation director of the Sacramento Union, testified, “the cost factor to have salaried employees in place of dealers would represent two and a half or more times outlay for the publisher.” The difference, Rothman explained, is that “a dealer works seven days a week,” usually with the help of other family members, and “takes care of his own transportation and equipment.”20 Robert Gilliland, plaintiffs’ expert on newspaper circulation practices, testified that in addition to these obvious economic benefits, independent distributors are “normally a harder working group of people and . . . have a more serious concern about the operation than a salaried employee.”
Because of such advantages to manufacturers, independent distributors continue to survive, and bring to the public the benefits of added competition in the distribution of goods and services. These benefits would be lost if manufacturers could obtain the private economic benefits of a system of distribution through independent businessmen, and at the same time restrict the freedom of such independent businessmen to compete. It was to prevent the wholesale destruction of this opportunity for competition that Schwinn forbade manufacturers to control the disposition of products after sale. “To permit this would sanction franchising and confinement of distribution as the ordinary instead of the unusual method which may be permissible in an appropriate and impelling competitive setting, since most merchandise is distributed by means of purchase and sale.” 388 U.S. at 379, 87 S.Ct. at 1865.
We reject defendants’ suggestion that plaintiffs’ distributorship was analogous to the agency and consignment situations referred to in Schwinn. The distributorship contract expressly provided that the distributor was to be “an independent wholesale distributor and not . . . an employee.” Conklin testified that plaintiffs were “dealt with as independent contractors,” and the record establishes that plaintiffs in fact operated on this basis. They purchased their own trucks and equipment and hired their own employees. They agreed “to purchase” the Bee. Defendants concede that plaintiffs acquired title to the copies purchased. Plaintiffs could return unsold copies at cost, but assumed the full and substantial risk of loss from theft and other causes.
The absence of an express territorial restriction is not fatal to plaintiffs’ claim. There is no magic in the label “area of primary responsibility.” It is enough if the restriction existed in fact, whether the product of an express or tacit understanding. See United States v. Arnold, Schwinn & Co., supra, 388 U.S. at 382, 87 S.Ct. 1856; Hobart Brothers Co. v. Malcolm T. Gilliland, Inc., 471 F.2d 894, 900 (5th Cir. 1973); Beverage Distributors, Inc. v. Olympia Brewing Co., 440 F.2d 21, 28 (9th Cir. 1971); Zimmerman, Distribution Restrictions After Sealy and Schwinn, 12 Antitrust Bull. 1181, 1187-88 (1967). But see Colorado Pump & Supply Co. v. Febco, Inc., 472 F.2d 637, 639 (10th Cir. 1973).
The jury could have inferred the existence of a tacit understanding from the evidence of numerous “suggestions” to plaintiffs that they split their territory, and from the testimony of Gallagher and two other city newsstand distributors that they
The jury could have found, therefore, that the proposed division of plaintiffs’ distributorship would have involved the imposition of a territorial restraint. There was also sufficient evidence that plaintiffs’ refusal to agree to divide their distributorship was a substantial factor in their termination. Thus, the jury may have based the verdict for defendants upon a finding that the territorial restraint was not an unreasonable burden on commerce. Since under Schwinn the jury should have been instructed that such territorial restrictions are per se unreasonable, the judgment for defendants on the termination claim must be rеversed and remanded for a new trial.
We do not agree with plaintiffs that a new trial is also required on the monopolization claim. Plaintiffs complain because the court instructed the jury that plaintiffs must prove that defendants “willfully acquired or willfully maintained monopoly power” and “had the intent and purpose to exercise the monopoly power.” Plaintiffs correctly point out that while a general intent is required for actual monopolization it may be shown by proof of the willful acquisition or maintenance of monopoly power,21 and it was improper for the court to state that both were required, as if they were independent. Although plaintiffs are technically correct, we think the redundancy was harmless.22
Two rulings of the trial court should be considered in view of the remand for a new trial. It was not error to exclude evidence that McClatchy deleted allegedly anticompetitive provisions in the distributorship contracts after plaintiffs’ termination. Plaintiffs argue that “an inference of guilt or wrongdoing may be drawn” from such evidence; but it is well settled that evidence of subsequent remedial measures is not admissible to prove culpability of prior conduct. See Boeing Airplane Co. v. Brown, 291 F.2d 310, 315 (9th Cir. 1961);
We think it was error, however, to inform the jury that “it is the function and duty of the court in the event that you should award damages to treble that amount in the judgment.” The sole function of the jury was to determine the amount of the damage actually sustained. The “probable consequence” of advising the
Defendants suggest that since jurors may be independently aware of the treble damage provision, an explanatory instruction is necessary to avoid jury confusion and the return of erroneous verdicts. “Our immediate reaction is that a district court can sufficiently instruct the jury to determine only actual damages. In those cases where an accidental revelation occurs, the court can give curative instructions to alleviate confusion.” Pollock & Riley, Inc. v. Pearl Brewing Co., supra, 498 F.2d at 1243 (emphasis in original; footnotes omitted).
The judgment for defendants on the termination claim is reversed and remanded for a new trial consistent with this opinion. The judgment for plaintiffs on the sale-of-business claim is reversed and remanded with instructions to enter judgment n. o. v. for defendants. The judgment for defendants on the monopolization claim is affirmed.
WILLIAM P. GRAY, District Judge (concurring and dissenting):
I am glad to concur in Judge Browning‘s opinion, except with respect to its holding that the trial court should make no mention of treble damages in instructing the jury. I think that the trial court should “level” with the jury and make sure that the members thereof understand the respective responsibilities of jury and court with respect to damages, just as the trial judge in this case did.
Jurors, like other citizens, are entitled to know what the law is, even with respect to damages in antitrust cases; presumably, many of the people who serve on juries have some awareness in these matters. If no explanation is given as to who does the multiplying by three, the jury might well assume that the responsibility is theirs and thus do it without anyone becoming aware that the “damages” have already been trebled. A judge fixes damages in an antitrust case in full knowledge that the amount will be tripled; I see no valid reason why we should try to conceal from a jury the ultimate effect of their verdict.
ON PETITION FOR REHEARING
The petition for rehearing was held pending the decision in GTE Sylvania, Inc. v. Continental T.V., Inc., 537 F.2d 980 (9th Cir. 1976). It is now denied.
As noted in the opinion in this case (see note 14), this case and GTE Sylvania deal with different questions. This case and Schwinn involve the legality of restrictions upon the territory in which a purchasing dealer may resell. The majority opinion in GTE Sylvania considers whether “Sylvania‘s practice of fixing by agreement the locations from which Continental was authorized to sell Sylvania‘s products was illegal per se under Section 1 of the Sherman Act.” Id. at 982. The majority opinion in GTE Sylvania approves the result reached in this case. However, it disapproves “any language in the Noble opinion that may be inconsistent with any of the majority‘s language” in GTE. Id. at 1004 n. 42. Accordingly, we have reexamined the opinions in both cases. We conclude that there are no inconsistencies between them and therefore
Notes
The [second] claim in this case is that the plaintiffs . . . contend that they were injured by reason of defendants’ alleged violation of Section 1 of the Sherman Act, in that defendants refused to permit plaintiffs to sell and transfer their newspaper distribution business known as Newsstand No. 5, as plaintiffs contend that they were entitled to do so pursuant to their ownership of said business.
I will refer to this claim as the sale of business claim.
This sale of business claim is a different claim from the territorial claim which I have just instructed you on. This sale of business claim is made by both plaintiffs and is irrespective of whether or not the termination of the contract was lawful; that is, plaintiffs are saying that regardless of whether or not the termination of the contract violated Section 1 of the Sherman Act, as they assert in support of their territorial restriction claim, there was another and different violation of Section 1 of the Sherman Act which caused them injury.
This other and different violation of Section 1 claimed by the plaintiffs is that after the contract was terminated there was a contract, combination or conspiracy to prevent them from selling their business, that this contract, combination or conspiracy in fact prevented them from selling their business and that this contract, combination or conspiracy restrained interstate commerce unreasonably.
In order for plaintiffs to recover for this alleged violation of Section 1, plaintiffs must show that after the contract was terminated there was a contract, combination or conspiracy to prevent them from selling their business, if any, as a going concern, and that this contract, combination or conspiracy in fact prevented them from selling their business, if any, and that this contract, combination or conspiracy was in unreasonable restraint of interstate trade and commerce.
“It is well settled that a manufacturer may discontinue dealing with a particular distributor ‘for business reasons that are sufficient to the manufacturer, and adverse effect on the business of the distributor is immaterial in the absence of any arrangement restraining trade.‘” Bushie v. Stenоcord Corp., 460 F.2d 116, 119 (9th Cir. 1972), quoting Richetti v. Meister Brau, Inc., 431 F.2d 1211, 1214 (9th Cir. 1970). Allowing plaintiffs in the present case to recover antitrust damages on the sale-of-business claim after losing the termination claim would in effect reverse the well settled law on the antitrust implications of distributorship terminations. Allowing plaintiffs to recover on the sale-of-business claim after winning on the termination claim would be to permit duplicative recovery.
Q. And you do know thаt under this paragraph 11 of the contract the Bee could terminate you and you would have nothing to sell?
A. That‘s true.
Certainly on the record before us the Court of Appeals was not entitled to assume, as its reasoning necessarily did, that the exclusive [territorial] rights granted by [the newspaper] were valid under Section 1 of the Sherman Act, either alone or in conjunction with a price-fixing scheme. See United States v. Arnold, Schwinn & Co., 388 U.S. 365, 373, 379 [87 S.Ct. 1856, 1862, 1865, 18 L.Ed.2d 1249] (1967). The assertion that illegal price fixing is justified because it blunts the pernicious consequenсes of another distribution practice is unpersuasive. If, as the Court of Appeals said, the economic impact of territorial exclusivity was such that the public could be protected only by otherwise illegal price fixing itself injurious to the public, the entire scheme must fall under Section 1 of the Sherman Act. (Emphasis added).
Where the manufacturer retains title, dominion, and risk with respect to the product and the position and function of the dealer in question are, in fact, indistinguishable from those of an agent or salesman of the manufacturer, it is only if the impact of thе confinement is ‘unreasonably’ restrictive of competition that a violation of § 1 results from such confinement, unencumbered by culpable price fixing.
A. Well, a dealer works seven days a week, because it‘s his business. His wife usually takes care of his books. If he has a couple of boys they carry a paper route. If it was an employee setup, they would be working five days a week, forty hours a week, and you would have to have one and a third man for each dealership plus the fact that you would have to have a relief man for it, plus the fact that anytime that they worked beyond that forty hours, and this dealership is practically a twenty-four hour affair, in case of an emergency, why, you would have to pay all that overtime, рlus the fact that you would have to supply trucks, vehicles of all kinds, where the dealership, the dealer takes care of his own transportation, plus the fact that you would have to buy or print all your various forms which the dealer either pays for now or buys it himself.